Course cover
Principles of taxation
,Table of contents
Part one: fundamental principles
1.1 What is a tax? ..................................................................................................................................................... 5
1.2 Fundamental questions of taxation .................................................................................................................... 6
1.2.1 Why : the benefit principle ................................................................................................................................ 6
1.2.2 Why : the sovereignty principle ......................................................................................................................... 6
1.2.3 How : the ability to pay & the equality principle ................................................................................................ 7
1.2.4 How : the legality principle ................................................................................................................................ 7
1.2.4 How : efficiency.................................................................................................... Error! Bookmark not defined.
1.3 Essential elements of a tax ................................................................................................................................. 8
1.3.1 Personal scope of tax ......................................................................................................................................... 8
1.3.2 Material scope of tax ......................................................................................................................................... 8
1.3.3 Tax base ............................................................................................................................................................. 8
1.3.4 Tax rate .............................................................................................................................................................. 8
1.3.5 Compliance, procedural rules, and sanctions .................................................................................................... 9
Part two: income taxes
2.1 Tax base of PIT .......................................................................................................................................................... 9
2.1.1 Concept of income ............................................................................................................................................. 9
2.1.2 Different income categories............................................................................................................................. 10
Income from real or immovable property ............................................................................................................ 10
Income from personal or movable property ......................................................................................................... 10
Income from personal business and professional activities (self-employment income)....................................... 11
Income from employment .................................................................................................................................... 11
Income from capital gains, or separate capital gains tax ...................................................................................... 14
Income from speculation & occasional or miscellaneous income: windfall gains ................................................. 14
2.1.3 Personal deductions......................................................................................................................................... 15
2.1.4 Global & schedular systems ............................................................................................................................. 15
2.2 Tax rate of PIT ......................................................................................................................................................... 16
2.2.1 Progressivity..................................................................................................................................................... 16
2.3 Personal allowance and family modulation ............................................................................................................ 18
2.3.1 Personal allowance .......................................................................................................................................... 18
2.3.2 Family modulation ........................................................................................................................................... 18
Part three: international (income) taxation
3.1 Concepts and terminology ...................................................................................................................................... 19
3.2 General rules of tax treaty interpretation & application ........................................................................................ 20
3.2.1 Tax treaties are treaties ................................................................................................................................... 20
3.2.2 The supremacy of treaty law............................................................................................................................ 21
3.2.3 Tax treaties only limit the application of domestic law .................................................................................... 21
, 3.2.4 Concepts can have a different meaning in treaty vs. domestic law ................................................................. 21
3.3 The OECD Model: overview .................................................................................................................................... 21
3.3.1 Chapter 1 : Scope of application of tax treaties ............................................................................................... 21
Material scope of application ............................................................................................................................... 22
Personal scope of application ............................................................................................................................... 22
Residence.............................................................................................................................................................. 22
Tie-breaker rules ................................................................................................................................................... 22
3.3.2 Chapter 2 : Treaty definitions .......................................................................................................................... 23
3.3.3 Chapter 3 : Taxation of income ........................................................................................................................ 23
Income from immovable property ........................................................................................................................ 23
Business profits ..................................................................................................................................................... 24
Permanent establishment (from chapter two!) .................................................................................................... 24
Business profits (cont.) ......................................................................................................................................... 25
Ships and aircraft .................................................................................................................................................. 25
Income from employment .................................................................................................................................... 26
3.3.4 Chapter 5 : Elimination of double taxation ...................................................................................................... 32
Article 23 of the OECD Model: elimination of double taxation ............................................................................. 32
Article 23 A (1): basic exemption mechanism ....................................................................................................... 32
Article 23 B (1): basic credit mechanism ............................................................................................................... 32
3.3.5 Sample questions ............................................................................................................................................. 34
Sample question 1 ................................................................................................................................................ 34
Sample question 2 ................................................................................................................................................ 35
Part four: value added tax
4.1 Importance of VAT .................................................................................................................................................. 36
4.2 Basic mechanism of VAT ......................................................................................................................................... 36
4.2.1 Difference with sales taxes .............................................................................................................................. 37
4.2.2 Basic mechanism.............................................................................................................................................. 37
4.2.3 Impact on individual businesses ...................................................................................................................... 38
4.3 Applying VAT rules: 5 steps ..................................................................................................................................... 38
4.4 Personal scope : categories of taxable persons ................................................................................................ 38
4.4.1 Basic definition of taxable persons .................................................................................................................. 39
4.4.2 Exempt taxable persons ................................................................................................................................... 39
4.4.3 Non-taxable legal persons................................................................................................................................ 40
4.4.4 Occasional taxable persons .............................................................................................................................. 40
Examples ............................................................................................................................................................... 41
4.5 Material scope : which transactions are taxable ..................................................................................................... 41
4.5.1 Supply of goods (art. 14-15 VAT-D) .................................................................................................................. 41
Self-supply of goods .............................................................................................................................................. 41
Excluded transactions ........................................................................................................................................... 42
, Supply of goods : Place ......................................................................................................................................... 42
Supply of goods : Time .......................................................................................................................................... 43
4.5.2 Services ............................................................................................................................................................ 43
Self-supply of services........................................................................................................................................... 43
Excluded transactions ........................................................................................................................................... 43
Services: place ...................................................................................................................................................... 44
Reverse charge for cross-border B2B .................................................................................................................... 44
Service: time ......................................................................................................................................................... 45
4.5.3 Importation of goods ....................................................................................................................................... 45
4.5.4 Intra-community acquisition of goods ............................................................................................................. 46
Place of an ICA ...................................................................................................................................................... 46
Possible scenarios in a situation such as that described in art. 20 VAT-D: ............................................................ 46
4.5.5 Exemptions ...................................................................................................................................................... 47
Exempt transactions with right of deduction of input VAT ................................................................................... 48
Exempt transactions without right of deduction of input VAT ............................................................................. 48
4.6 Tax rates & taxable amounts .................................................................................................................................. 49
4.6.1 Tax rates........................................................................................................................................................... 49
4.6.2 Taxable amount ............................................................................................................................................... 49
4.6.3 Deduction of input-VAT ................................................................................................................................... 49
Principles of taxation
,Table of contents
Part one: fundamental principles
1.1 What is a tax? ..................................................................................................................................................... 5
1.2 Fundamental questions of taxation .................................................................................................................... 6
1.2.1 Why : the benefit principle ................................................................................................................................ 6
1.2.2 Why : the sovereignty principle ......................................................................................................................... 6
1.2.3 How : the ability to pay & the equality principle ................................................................................................ 7
1.2.4 How : the legality principle ................................................................................................................................ 7
1.2.4 How : efficiency.................................................................................................... Error! Bookmark not defined.
1.3 Essential elements of a tax ................................................................................................................................. 8
1.3.1 Personal scope of tax ......................................................................................................................................... 8
1.3.2 Material scope of tax ......................................................................................................................................... 8
1.3.3 Tax base ............................................................................................................................................................. 8
1.3.4 Tax rate .............................................................................................................................................................. 8
1.3.5 Compliance, procedural rules, and sanctions .................................................................................................... 9
Part two: income taxes
2.1 Tax base of PIT .......................................................................................................................................................... 9
2.1.1 Concept of income ............................................................................................................................................. 9
2.1.2 Different income categories............................................................................................................................. 10
Income from real or immovable property ............................................................................................................ 10
Income from personal or movable property ......................................................................................................... 10
Income from personal business and professional activities (self-employment income)....................................... 11
Income from employment .................................................................................................................................... 11
Income from capital gains, or separate capital gains tax ...................................................................................... 14
Income from speculation & occasional or miscellaneous income: windfall gains ................................................. 14
2.1.3 Personal deductions......................................................................................................................................... 15
2.1.4 Global & schedular systems ............................................................................................................................. 15
2.2 Tax rate of PIT ......................................................................................................................................................... 16
2.2.1 Progressivity..................................................................................................................................................... 16
2.3 Personal allowance and family modulation ............................................................................................................ 18
2.3.1 Personal allowance .......................................................................................................................................... 18
2.3.2 Family modulation ........................................................................................................................................... 18
Part three: international (income) taxation
3.1 Concepts and terminology ...................................................................................................................................... 19
3.2 General rules of tax treaty interpretation & application ........................................................................................ 20
3.2.1 Tax treaties are treaties ................................................................................................................................... 20
3.2.2 The supremacy of treaty law............................................................................................................................ 21
3.2.3 Tax treaties only limit the application of domestic law .................................................................................... 21
, 3.2.4 Concepts can have a different meaning in treaty vs. domestic law ................................................................. 21
3.3 The OECD Model: overview .................................................................................................................................... 21
3.3.1 Chapter 1 : Scope of application of tax treaties ............................................................................................... 21
Material scope of application ............................................................................................................................... 22
Personal scope of application ............................................................................................................................... 22
Residence.............................................................................................................................................................. 22
Tie-breaker rules ................................................................................................................................................... 22
3.3.2 Chapter 2 : Treaty definitions .......................................................................................................................... 23
3.3.3 Chapter 3 : Taxation of income ........................................................................................................................ 23
Income from immovable property ........................................................................................................................ 23
Business profits ..................................................................................................................................................... 24
Permanent establishment (from chapter two!) .................................................................................................... 24
Business profits (cont.) ......................................................................................................................................... 25
Ships and aircraft .................................................................................................................................................. 25
Income from employment .................................................................................................................................... 26
3.3.4 Chapter 5 : Elimination of double taxation ...................................................................................................... 32
Article 23 of the OECD Model: elimination of double taxation ............................................................................. 32
Article 23 A (1): basic exemption mechanism ....................................................................................................... 32
Article 23 B (1): basic credit mechanism ............................................................................................................... 32
3.3.5 Sample questions ............................................................................................................................................. 34
Sample question 1 ................................................................................................................................................ 34
Sample question 2 ................................................................................................................................................ 35
Part four: value added tax
4.1 Importance of VAT .................................................................................................................................................. 36
4.2 Basic mechanism of VAT ......................................................................................................................................... 36
4.2.1 Difference with sales taxes .............................................................................................................................. 37
4.2.2 Basic mechanism.............................................................................................................................................. 37
4.2.3 Impact on individual businesses ...................................................................................................................... 38
4.3 Applying VAT rules: 5 steps ..................................................................................................................................... 38
4.4 Personal scope : categories of taxable persons ................................................................................................ 38
4.4.1 Basic definition of taxable persons .................................................................................................................. 39
4.4.2 Exempt taxable persons ................................................................................................................................... 39
4.4.3 Non-taxable legal persons................................................................................................................................ 40
4.4.4 Occasional taxable persons .............................................................................................................................. 40
Examples ............................................................................................................................................................... 41
4.5 Material scope : which transactions are taxable ..................................................................................................... 41
4.5.1 Supply of goods (art. 14-15 VAT-D) .................................................................................................................. 41
Self-supply of goods .............................................................................................................................................. 41
Excluded transactions ........................................................................................................................................... 42
, Supply of goods : Place ......................................................................................................................................... 42
Supply of goods : Time .......................................................................................................................................... 43
4.5.2 Services ............................................................................................................................................................ 43
Self-supply of services........................................................................................................................................... 43
Excluded transactions ........................................................................................................................................... 43
Services: place ...................................................................................................................................................... 44
Reverse charge for cross-border B2B .................................................................................................................... 44
Service: time ......................................................................................................................................................... 45
4.5.3 Importation of goods ....................................................................................................................................... 45
4.5.4 Intra-community acquisition of goods ............................................................................................................. 46
Place of an ICA ...................................................................................................................................................... 46
Possible scenarios in a situation such as that described in art. 20 VAT-D: ............................................................ 46
4.5.5 Exemptions ...................................................................................................................................................... 47
Exempt transactions with right of deduction of input VAT ................................................................................... 48
Exempt transactions without right of deduction of input VAT ............................................................................. 48
4.6 Tax rates & taxable amounts .................................................................................................................................. 49
4.6.1 Tax rates........................................................................................................................................................... 49
4.6.2 Taxable amount ............................................................................................................................................... 49
4.6.3 Deduction of input-VAT ................................................................................................................................... 49
