INTERNATIONAL TAXATION:
Introduction and general concepts:
Definition: “all rules that determine where and how, in a cross-border context, specific
income of a taxpayer may be taxed and how this tax must be assessed and recovered”
No separate set of rules, but various sources of law:
• National tax laws (PM)
• General principles of international tax law (mostly written)
• EU law
• International guidelines (in particular OECD material)
• Bilateral treaties
1
,States’ power to tax:
• Derived from their sovereignty = the right for a state to regulate its affairs through
its governmental institutions
• Why does the government need taxes?
• Not unlimited: requires a nexus or connection
- States can tax based on a “genuine link” = customary international law
See also: the case of the S.S. Lotus (boat)
“Now the first and foremost restriction imposed by international law upon
a State is that – failing the existence of a permissive rule to the contrary – it
may not exercise its power in any form in the territory of another State. In
this sense jurisdiction is certainly territorial; it cannot be exercised by a
State outside its territory except by virtue of a permissive rule derived from
international custom or from a convention.”
• Taxation is not permissible without any connection between the taxpayer or
transaction and the state’s territory:
- Determined by national tax law:
USA: nationality principle
Belgium: residence principle
Hong-Kong: territoriality principle ➔ only income that is sourced on the
territory – also for resident taxpayers – is taxed in Hong-Kong
Influence of EU law:
• Relevant provisions in TFEU:
- General non-discrimination principle (art. 18)
- Fundamental freedoms: free movement within internal market (art. 26, §2)
goods (art. 28 et seq) persons (art. 21) employment (art. 45 et seq)
establishment (art. 49 et seq) services (art. 56 et seq) capital (art. 63)
- Prohibition on (fiscal) state aid (art. 107-108)
• Increasing impact of the European Court of Justice case law (also in the field of
tax treaties) ➔ illustration: CJEU 28.01.1986 “Avoir Fiscal”
• Income Tax Directives:
- Directive on Mutual assistance between tax authorities (1977) replaced by
new Directive (DAC) adopted 15 Feb 2011 + (many recent amendments to
allow (i) automatic exchange of bank info on investment income (ii) rulings),
(iii) critical information on multinationals; (iv) disclosure obligations of tax
consultants on planning structures etc..
- Parent-Subsidiary Directive (1990, recast 2011 with later amendments)
- Merger Directive (1990 recast 2009 with later amendments)
- Savings Directive (2003 with later amendments, now repealed)
- Interest & Royalty Directive (2003)
- Anti Tax Avoidance Directive I and II (“ATAD”, 2016/2017)
- Tax Dispute Resolution Mechanisms Directive (2017 + Arbitration Convention)
- Global Minimum Taxation of Multinationals (2022)
• International guidelines and recommendations (soft law):
- OECD guidelines: a few examples (see also infra):
Reports on Taxation of Electronic Commerce (2000 and following)
Transfer Pricing Guidelines (1995-1999-2010-2017-2022)
2
, Report on Harmful Tax Competition (1998)
Report on Attribution of profits to permanent establishments (2008)
Base Erosion & Profit Shifting (“BEPS”) of October 2015: 15 Reports (infra)
- EU Commission: a few examples
Code of conduct against harmful tax competition (1997) (reform)
Recommendation of Fair & Efficient corporate tax system (2015)
• Bilateral treaties: this course focuses on (bilateral) tax treaties
- Two main types of model treaties: OECD and UN (see also infra)
In addition many national Model tax treaties: the U.S. Model, the Dutch
Model, the Belgian Model, etc.
- Main focus: OECD Model Tax Convention 2017 + Commentary
- Impact of investment treaties:
Database of treaties in force (bilateral investment treaties ‘BITS’ and
treaties with investment provisions ‘TIPS’) and model agreements
Safeguards for investors (national treatment, most favoured nation
treatment, fair and equitable treatment, protection against expropriation)
Several tax cases, notably Yukos v. Russia (2014 Permanent Court of
Arbitration under Energy Charter Treaty) and Lone Star v. Korea (2022 BIT
Belgium-Luxembourg-Korea)
Basic problems of international tax law:
• Power (or jurisdiction) to tax derived from sovereignty:
- Subjective (personal) nexus: link based on the taxpayer's link to the state
Individuals: physical presence, domicile (residence), but also citizenship,
official registration (in population registers), or immigration status
Legal entities: place of incorporation, place of effective management
- Objective (territorial) nexus: based on the transaction or activity
Examples: part of the transaction occurs within the state, or the
transaction object is connected to the state
- PM: functional jurisdiction (continental shelf)
• Limited and unlimited tax liability:
- Unlimited tax liability: worldwide income (‘full tax liability’) = universality
principle ➔ subjective nexus
- Limited tax liability: part of income link to territory (or functional link) =
territoriality principle ➔ objective nexus
- Customary international law (?)
• Double (non) taxation:
- Multiple applications of sovereignty + different types of tax liability result in
international double (non) taxation
- International double taxation: what?
Not domestic: different layers of taxation within one State (e.g. within
federal state) ➔ concurring taxing rights exercised by two (or more) states
3
, Situation (1): full tax liability in two (or more) states
Based on close personal connection
Concurrence of two different criteria for a personal
connection OR different interpretation of the same test
Situation (2): full tax liability and limited tax liability
Concurrence of subjective and objective nexus
Full tax liability: taxation of worldwide income based on
personal connection (e.g. residence)
Limited tax liability: taxation only on income earned within the
state (territoriality principle)
Situation (3): limited tax liability in two (or more) states
Concurrence of different criteria to determine source state of
income (objective nexus) = conflicting source rules
Limited tax liability: taxation only on income earned within the
state (territoriality principle)
Special situation: economic double taxation with two (or more) taxpayers
Example: UK ➔ SCITD, 19.11.2008, Bayfine UK Products v. Revenue and Customs
Commissioners
4
Introduction and general concepts:
Definition: “all rules that determine where and how, in a cross-border context, specific
income of a taxpayer may be taxed and how this tax must be assessed and recovered”
No separate set of rules, but various sources of law:
• National tax laws (PM)
• General principles of international tax law (mostly written)
• EU law
• International guidelines (in particular OECD material)
• Bilateral treaties
1
,States’ power to tax:
• Derived from their sovereignty = the right for a state to regulate its affairs through
its governmental institutions
• Why does the government need taxes?
• Not unlimited: requires a nexus or connection
- States can tax based on a “genuine link” = customary international law
See also: the case of the S.S. Lotus (boat)
“Now the first and foremost restriction imposed by international law upon
a State is that – failing the existence of a permissive rule to the contrary – it
may not exercise its power in any form in the territory of another State. In
this sense jurisdiction is certainly territorial; it cannot be exercised by a
State outside its territory except by virtue of a permissive rule derived from
international custom or from a convention.”
• Taxation is not permissible without any connection between the taxpayer or
transaction and the state’s territory:
- Determined by national tax law:
USA: nationality principle
Belgium: residence principle
Hong-Kong: territoriality principle ➔ only income that is sourced on the
territory – also for resident taxpayers – is taxed in Hong-Kong
Influence of EU law:
• Relevant provisions in TFEU:
- General non-discrimination principle (art. 18)
- Fundamental freedoms: free movement within internal market (art. 26, §2)
goods (art. 28 et seq) persons (art. 21) employment (art. 45 et seq)
establishment (art. 49 et seq) services (art. 56 et seq) capital (art. 63)
- Prohibition on (fiscal) state aid (art. 107-108)
• Increasing impact of the European Court of Justice case law (also in the field of
tax treaties) ➔ illustration: CJEU 28.01.1986 “Avoir Fiscal”
• Income Tax Directives:
- Directive on Mutual assistance between tax authorities (1977) replaced by
new Directive (DAC) adopted 15 Feb 2011 + (many recent amendments to
allow (i) automatic exchange of bank info on investment income (ii) rulings),
(iii) critical information on multinationals; (iv) disclosure obligations of tax
consultants on planning structures etc..
- Parent-Subsidiary Directive (1990, recast 2011 with later amendments)
- Merger Directive (1990 recast 2009 with later amendments)
- Savings Directive (2003 with later amendments, now repealed)
- Interest & Royalty Directive (2003)
- Anti Tax Avoidance Directive I and II (“ATAD”, 2016/2017)
- Tax Dispute Resolution Mechanisms Directive (2017 + Arbitration Convention)
- Global Minimum Taxation of Multinationals (2022)
• International guidelines and recommendations (soft law):
- OECD guidelines: a few examples (see also infra):
Reports on Taxation of Electronic Commerce (2000 and following)
Transfer Pricing Guidelines (1995-1999-2010-2017-2022)
2
, Report on Harmful Tax Competition (1998)
Report on Attribution of profits to permanent establishments (2008)
Base Erosion & Profit Shifting (“BEPS”) of October 2015: 15 Reports (infra)
- EU Commission: a few examples
Code of conduct against harmful tax competition (1997) (reform)
Recommendation of Fair & Efficient corporate tax system (2015)
• Bilateral treaties: this course focuses on (bilateral) tax treaties
- Two main types of model treaties: OECD and UN (see also infra)
In addition many national Model tax treaties: the U.S. Model, the Dutch
Model, the Belgian Model, etc.
- Main focus: OECD Model Tax Convention 2017 + Commentary
- Impact of investment treaties:
Database of treaties in force (bilateral investment treaties ‘BITS’ and
treaties with investment provisions ‘TIPS’) and model agreements
Safeguards for investors (national treatment, most favoured nation
treatment, fair and equitable treatment, protection against expropriation)
Several tax cases, notably Yukos v. Russia (2014 Permanent Court of
Arbitration under Energy Charter Treaty) and Lone Star v. Korea (2022 BIT
Belgium-Luxembourg-Korea)
Basic problems of international tax law:
• Power (or jurisdiction) to tax derived from sovereignty:
- Subjective (personal) nexus: link based on the taxpayer's link to the state
Individuals: physical presence, domicile (residence), but also citizenship,
official registration (in population registers), or immigration status
Legal entities: place of incorporation, place of effective management
- Objective (territorial) nexus: based on the transaction or activity
Examples: part of the transaction occurs within the state, or the
transaction object is connected to the state
- PM: functional jurisdiction (continental shelf)
• Limited and unlimited tax liability:
- Unlimited tax liability: worldwide income (‘full tax liability’) = universality
principle ➔ subjective nexus
- Limited tax liability: part of income link to territory (or functional link) =
territoriality principle ➔ objective nexus
- Customary international law (?)
• Double (non) taxation:
- Multiple applications of sovereignty + different types of tax liability result in
international double (non) taxation
- International double taxation: what?
Not domestic: different layers of taxation within one State (e.g. within
federal state) ➔ concurring taxing rights exercised by two (or more) states
3
, Situation (1): full tax liability in two (or more) states
Based on close personal connection
Concurrence of two different criteria for a personal
connection OR different interpretation of the same test
Situation (2): full tax liability and limited tax liability
Concurrence of subjective and objective nexus
Full tax liability: taxation of worldwide income based on
personal connection (e.g. residence)
Limited tax liability: taxation only on income earned within the
state (territoriality principle)
Situation (3): limited tax liability in two (or more) states
Concurrence of different criteria to determine source state of
income (objective nexus) = conflicting source rules
Limited tax liability: taxation only on income earned within the
state (territoriality principle)
Special situation: economic double taxation with two (or more) taxpayers
Example: UK ➔ SCITD, 19.11.2008, Bayfine UK Products v. Revenue and Customs
Commissioners
4
