Principles of International Taxation

Transcription

1 Principles of International Taxation by Angharad Miller FCA CTA Senior Lecturer in Taxation, Bournemouth University and Lynne Oats B.Bus, PGDip Bus, PhD Reader in Accounting and Taxation, University of Warwick

2 Preface Table of Stautues Table of cases Glossary Part 1 Introduction to Tax 1 1 Introduction to Taxation 3 Why governments levy taxes 3 Elements of taxes 4 Types of taxes 5 The flat tax debate 10 Compliance and administrative costs of taxation 11 Tax avoidance 12 Tax expenditures 12 Evaluating taxes and tax systems 13 Comparative taxation 14 Summary 14 Further reading 14 Part 2 Introduction to International Tax Chapter 17 2 Introduction to International Taxation 19 Introduction 19 Further reading 26 3 The Right to Tax Individuals 28 Introduction 28 The UK's approach to determining the tax residence of individuals 31 The concept of domicile 39 Summary 41 References 42 4 The Right to Tax Companies 44 Introduction 44 Further reading 56 5 The Double Tax Problem 57 Introduction 57 The basic problem 57 v xiii xv xvii vn

3 Double tax relief 58 Types of foreign tax which may qualify for double tax relief 67 Withholding taxes 68 Summary 71 Further reading 72 6 Variations on the Credit Method 73 Introduction 73 The UK's double tax relief regime 75 Case study: London pic 75. The UK system prior to FA strict source by source 77 The system prior to FA offshore pooling 78 The link with anti-haven legislation 78 London pic: offshore pooling without restrictions 79 The double tax relief system in the UK post FA limited onshore pooling 82 Application of onshore pooling to London pic 83 The elimination of the advantages of offshore pooling 86 London pic: onshore pooling where an offshore intermediate holding company is used 87 Future developments in UK double tax relief 90 Summary 90 Further reading 91 7 Double Tax Treaties 92 Introduction 92 The relationship of tax treaties to domestic law 93 The development of tax treaties 94 The OECD Model Convention of 1963 (revised 1977 and 1992) 95 Allocating the right to tax between the two contracting states 98 Main articles in the OECD Model Convention 99 Tax sparing 107 Limitation of benefits clauses 108 Interpretation of tax treaties 108 Limitations on the use of double tax treaties by tax authorities 109 The use of multilateral treaties 109 Summary 110 Further reading 110 Part 3 International Tax Planning Permanent Establishments 115 Introduction 115 The concept of a permanent establishment 115 A 'fixed place of business' 117 vm

4 The use of agents 121 Fellow group companies as PEs 126 The UK domestic law on PE 126 The attribution of profits to a PE 127 PE - an outdated concept? 129 Summary 130 Further reading Companies Expanding Abroad 133 Introduction 133 Inward investment into the UK 134 Outward investment by a UK company 136 The impact of tax-sparing provisions 141 Summary 143 Further reading Individuals Working Abroad 145 Introduction,145 Tax position of UK residents working abroad 145 Tax allowances 147 Tax position of individuals coming to the UK to work 147 Tax treatment of employees resident but not ordinarily resident in the UK 149 Tax treatment of employees who have a foreign domicile and work for a non-resident employer 150 Travelling expenses 153 Special deduction for seafarers 154 National Insurance contributions for employees going to work abroad 154 The taxation of share options for internationally mobile employees 155 Tax equalisation arrangements 155 Personal tax planning for employees posted abroad 156 Summary 157 Further reading Tax Aspects of Financing for Multinational Groups 159 Introduction 159 The effect of withholding taxes 160 International treasury management within multinational groups of companies 162 Maximising the value of the tax deduction for interest: basic strategies 163 IX

5 Financing investment in countries with high inflation 166 Cross-border tax arbitrage 166 Summary 169 Further reading 170 Part 4 International Tax Avoidance Introduction to Tax Havens 173 Introduction 173 Rationale for the use of tax havens 173 The growth of the offshore financial sector 177 Summary 186 Further reading Anti-Haven Legislation 188 Introduction 188 The five possible grounds for exemption ^ 196 Captive insurance companies 202 Summary 203 Further reading Transfer Pricing 205 Introduction 205 The 'arm's-length' principle 208 A very brief history of transfer pricing legislation 209 The role of the OECD 210 Recommendations in the 1994 OECD guidelines 211 Transaction based methods of determining arm's-length prices 215 Transactional profits based methods 221 Other profit based methods 225 Cost sharing arrangements 225 The UK transfer pricing legislation - ICTA 1988, Sch 28AA 228 Industry focus - the pharmaceutical industry 229 Transfer pricing and financial transactions 231 Record keeping 238 Penalties 239 Advance Pricing Agreements (APAs) 239 The risk of double taxation from transfer pricing adjustments 240 Is the OECD right in insisting on the arm's-length principle? 242 Alternative to arm's length-formulary apportionment 243 Summary 244 Further reading 246

6 15 Treaty Shopping 249 Introduction 249 Forms of treaty shopping 249 Common law and treaty shopping 253 Tax treaties and treaty shopping 254 The UK-US Treaty 257 Summary 258 Further reading 259 Part 5 International Tax Policy E-Commerce 263 Introduction 263 PEs: the questions posed by global e-commerce 264 Can an automated machine be a 'PE'? 265 Dangers of substantially altering the 'PE' rule 267 Proposals evaluated by the TAG in the November 2003 discussion draft 267 The current UK position on electronic commerce 268 The impact of the current OECD proposals for attribution of profits to PEs on the taxation of electronic commerce 269 Electronic commerce and transfer pricing 269 Summary 270 Further reading Tax Competition 272 Introduction 272 Competition with regard to portfolio investment 273 Tax competition - direct investment 273 Use of foreign company/branch for group treasury and finance operations 274 The EU Code of Conduct 276 The OECD initiative on Harmful Tax Competition 278 Removing tax competition - the case of the Belgian Coordination Centres 281 The arguments for retaining tax competition 284 Further reading n European Corporation Tax Issues 287 Introduction 287 EU principles affecting tax issues 287 Moves towards harmonisation already in place: the Directives 289 Current EU proposals for harmonisation of direct taxation 292 The common consolidated EU corporate tax base 299 XI

7 The European Corporate Income Tax (EUCIT) 303 Societas Europaea - the European Company 304 Harmonisation and the accession States *- the flat tax obstacle 305 Recent and important cases 305 Summary 313 Further reading VAT and Customs Duties 315 How VAT works 315 Alternative systems for dealing with cross-border supplies 317 Imports to and exports from the EC 320 Cross-border supplies of goods within the EC 323 Supplies of services 326 Beyond the Transitional Regime - the 'Definitive System' 331 Summary 337 Further reading 341 Index 343 xn