Basic International Taxation

Transcription

1 Basic International Taxation Roy Rohatgi KLUWER LAW INTERNATIONAL LONDON / THE HAGUE / NEW YORK

2 TABLE OF CONTENTS Preface About the Author xiii xv CHAPTER 1 AN OVERVIEW OF INTERNATIONAL TAXATION 1 1. Objectives of Global Tax Systems 1 2. International Tax Conflicts and Double Taxation 2 3. Double Tax Treaties 2 4. Domestic Tax Systems 3 5. International Offshore Financial Centres 4 6. Anti-avoidance Measures 4 7. International Tax Planning 5 8. Structure of the Book 6 9. Suggested Further Reading OECD Publications Tax Journals Websites 9 CHAPTER 2 PRINCIPLES OF INTERNATIONAL TAX LAW International Tax Law Definition Juridical Double Taxation Connecting Factor Conflicts International Tax Rules How International Treaties Come into Force Vienna Convention on the Law of Treaties (VCLT) Role of Tax Treaties under Public International Law Is International Tax Law Enforceable Interpretation of Tax Treaties Interpretation under VCLT (1969) Model Convention and Commentary 24

3 2.4. Other Extra-textual Material Interpretative Rule under Article 3(2) OECD MC Some Legal Decisions on Treaty Interpretations Country Examples Applicability of Tax Treaties Limitations of Double Tax Treaties Can Domestic Law Override a Tax Treaty Remedies against Treaty Overrides Country Examples Model Tax Convention Historical Background Benefits of the Model Tax Treaty Basic Content of the Model Tax Treaty Structure of the Model Tax Treaty Relief against Double Taxation Multilateral Tax Agreements European Union Directives Andean Pact CARICOM Multilateral Tax Agreement Nordic Convention Council for Mutual Economic Assistance Agreement (CMEA) Others Suggested Further Reading 53 CHAPTER3 MODEL TAX CONVENTIONS ON DOUBLE TAX AVOIDANCE OECD Model Convention on Income and Capital (OECD MC) Other Contents of the Model Convention Distributive Rules under the Model Conventions UN Model Convention (UN MC) Significant Differences between OECD and UN MC US Model Convention (US MC) Significant Differences between OECD and US MC Articles in the Model Conventions Bilateral Tax Treaties Suggested Further Reading 129 VI

4 CHAPTER4 IMPACT OF DOMESTIC TAX SYSTEMS Introduction Connecting Factors Resident v Nonresident Full v Limited Taxation Tax Residence or Fiscal Domicile Residence of Individuals Residence of Companies Residence of Other Entities Domicile under Common Law Source of Income or Gain Basic Source Rules Taxing Source Rules Conflicts in Source Rules Basis of Tax Computation Tax Rate Tax Base Accounting Policies Tax Allowances and Disallowances Tax Incentives Treatment of Tax Losses Revenue or Trading Losses Capital Losses Foreign Branch Losses Tax Consolidation Rules ("Group Taxation") Country Examples Passive Income Dividend Income Interest Income and Expense Royalty Income Capital Gains Withholding Taxes Foreign Tax Relief Expense Deduction 208 vu

5 8.3. Exemption Method Foreign Tax Credit Country Examples Suggested Further Reading 223 CHAPTER 5 INTERNATIONAL OFFSHORE FINANCIAL CENTRES What is a Tax Haven The Role of Offshore Financial Centres Base Havens Treaty Havens Special Concession Havens How to Choose an International Offshore Financial Centre Non-tax Factors Tax and Non-tax Factors - A Checklist Examples of Intermediary Entities International Holding Company International Finance Company Licensing or Royalty Routing Company Offshore Trading Company Group Administration Office or Co-ordination Centre Employee Leasing Company Offshore Banking Unit Captive Insurance Company International Shipping (or Aircraft) Company Offshore Funds Offshore Trust Hybrid Company Others Major Offshore Financial Centres Base Havens Treaty Havens Special Concession Havens Some Current Issues and Developments Tax Avoidance and Evasion Money Laundering Bank Secrecy Recent Growth in Offshore Industry Suggested Further Reading 339 vin

6 PTER 6 n-avoidance MEASURES 1.1. What is Tax Avoidance 1.2. Common Anti-avoidance Provisions Judicial Anti-avoidance Doctrines 2.1. Common Law 2.2. Civil Law 2.3. Country Examples Anti-treaty Shopping Measures Impact of Treaty Shopping 3.3. OECD Report on the Use of Conduit Companies 3.4. Treaty Shopping under the OECD Model Treaty and Commentary 3.5. Beneficial Ownership Requirement 3.6. Country Examples 3.7. Comments Controlled Foreign Corporation Thin Anti-deferral or CFC Legislation Country Examples Comments Capitalisation What is Thin Capitalisation Thin Capitalisation Rules What is Debt and Equity Tax Treatment of Interest Costs Impact of Tax Treaties Country Examples Comments Transfer Pricing Transactions Involving Transfer Pricing Issues OECD and Transfer Pricing Methods for Determination of the Arm's Length Price How to Decide the Transfer Price Transfer Pricing under Domestic Tax Law Transfer Pricing under Tax Treaties Country Examples Comments Some Other Anti-avoidance Measures 7.1. Exchange of Information All All An IX

7 7.2. Exit Taxes and Transfer of Tax Residence Exchange Controls Branch Profits Tax Use of Tax Havens Anti-EU Directive Shopping Legislation Anti-avoidance and International Tax Planning Suggested Further Reading 437 CHAPTER 7 BASIC PRINCIPLES OF INTERNATIONAL TAX PLANNING International Tax Planning What is International Tax Planning Need for International Tax Planning Opportunities for International Tax Planning International Tax Planning Techniques International Tax Planning - a Methodology International Tax Structures Examples of Tax-beneficial Structures Forms of Business Entity Financing of Overseas Entities Tax Planning for Cross-border Transactions - Some Examples Conversion of a Foreign Branch to a Foreign Subsidiary Mergers and Acquisitions Repatriation of Profits Liquidation of Companies International Tax Planning for Expatriate Individuals Treaty Provisions Tax Planning Considerations Tax Planning Measures Country Examples Social Security Contributions Avoidance of Economic Double Taxation of Dividends Imputation System Participation Exemption European Union Parent-Subsidiary Directive Advance Tax Rulings Country Examples Suggested Further Reading 507

8 CHAPTER 8 SOME CURRENT ISSUES IN INTERNATIONAL TAXATION Electronic Commerce Impact on Cross-border Business Activities International Taxation Issues Some Country Views OECD Proposals Comments Cross-border Computer Software Payments International Tax Issues OECD Report and Commentary Technical Services and Assistance Treatment under Domestic Laws Treatment under Tax Treaties Comments Attribution of Income to Permanent Establishments Direct v Indirect Method Transfers between Head Office and Permanent Establishment OECD MC and Commentary Comments Treatment of Exchange Gains and Losses Foreign Currency Transactions ("Conversion") Foreign Currency Translations ("Translation") Country Examples Comments Triangular Cases Some Examples Partnerships Partnership as a Tax Conduit or Taxable Entity Can a Partnership Benefit from Tax Treaties Hybrid Entities OECD Report on Partnerships Classification of Foreign Entities Country Examples Financial Instruments XI

9 8.2. Hybrid Financial Instruments Derivative Financial Instruments Global Trading Harmful Tax Competition Background Definitions Recommendations of 1998 Report Towards Global Tax Co-operation Comments Suggested Further Reading 574 CHAPTER 9 INTERNATIONAL TAX GLOSSARY 575 The glossary of terms has been extracted from the "International Tax Glossary," a book published by the International Bureau of Fiscal Documentation (The Netherlands), with their permission. The book provides an exhaustive list of most terms commonly used in international taxation. EXHIBITS-MODEL TAX TREATIES OECD Model Tax Convention on Income and on Capital (April 29, 2000) United Nations Model Double Taxation Convention between Developed and Developing Countries (January 11, 2001) United States Model Income Tax Convention (September 20, 1996) 662 RECENT DEVELOPMENTS IN INTERNATIONAL TAXATION 683 Index 691 Xll