Law 410/565 International Taxation Spring 2016 Tuesdays & Thursdays 9:00 am 10:30 am Allard Hall, Room B101 PROFESSOR DAVID DUFF T: (604) 827-3586 E: duff@allard.ubc.ca Office: Allard Hall, Room 466 Office Hours: By appointment 1. Course Description The increased globalization of economic activity during the past few decades has made the international dimension of tax law and policy increasingly important. This course examines tax rules governing nonresidents carrying on income-earning activities in Canada (inbound rules) and Canadian residents earning income in other countries (outbound rules). Introductory classes examine the basic structure of the international tax regime, international tax administration and dispute resolution, the sources of international tax law (statutory rules, bilateral tax treaties, and judicial decisions) and the interpretation of tax treaties, key rules and principles determining residence and source jurisdiction to tax the income of residents and non-residents, as well as rules governing tax treaty shopping and non-arm s length transactions. Subsequent classes consider statutory rules, tax treaty provisions and judicial decisions governing the taxation of Canadian source income received by non-residents, and foreign-source income received by Canadian residents. 2. Course Objectives The course is designed to give students a solid understanding of the international tax regime and the domestic and bilateral tax treaty rules through which this regime is constituted, to engage students in reading and interpreting relevant provisions of the Canadian Income Tax Act, bilateral tax treaties and the OECD Model Convention on the Taxation of Income and Capital, and to develop legal skills associated with critical reading and analysis. By the end of the course, students should understand: the basic structure of the international tax regime; the essential elements of international tax administration and dispute resolution; the sources of international tax law and their role in the interpretation of domestic tax rules and tax treaties; the concepts of residence and source jurisdiction and their role in the taxation of residents and non-residents; key methods of international tax avoidance and domestic and tax treaty rules designed to counteract international tax avoidance; key statutory rules, tax treaty provisions and judicial decisions governing the taxation of Canadian source income received by non-residents; and key statutory rules, tax treaty provisions and judicial decisions governing the taxation of foreignsource income received by Canadian residents.
Taxation 410/565 2 3. Required Materials Thorsteinssons Income Tax Act, CCH 100 th Edition (2015) ( ITA ). Jinyan Li, Arthur Cockfield, and J. Scott Wilkie, International Taxation in Canada: Principles and Practices, 3 rd ed. (Toronto: LexisNexis Canada Inc., 2014) ( Li, Cockfield, and Wilkie ). David G. Duff, International Taxation Supplementary Materials, Volumes 1-3 (2016) ( Materials ). 4. (NOT Required) Brian J. Arnold and Michael J. McIntyre, International Tax Primer, 2 nd edn. (The Hague: Kluwer Law International, 2002) ( Arnold and McIntyre ). Vern Krishna, The Fundamentals of Canadian Income Tax, 9th edn., (Scarborough: Carswell, 2006) ( Krishna ). 5. Course Evaluation Law 410 - Final Exam (100%) Tuesday, April 26, 9:00 am 12:30 pm Law 565 - Take-home Exam (100%) Distributed Friday April 15, due by 4:00 pm on Tuesday, April 26 6. Academic Integrity Please familiarize yourself with the UBC Calendar rules and penalties for plagiarism, cheating, and other offences: http://www.students.ubc.ca/calendar/index.cfm?tree=3,54,0,0 All UBC law students are subject to the University's rules on Academic Misconduct (http://vpacademic.ubc.ca/integrity/ubc-regulation-on-plagiarism/), and are expected to act with academic integrity at all times. Students should be especially aware of the University's rules in relation to plagiarism. Plagiarism includes: copying the work of another student; copying or paraphrasing from a textbook or reference book, journal article, case or electronic source without proper footnoting; copying your own work that has already been submitted for another course in this degree or another degree, passing off the ideas of another person as your own. If you plagiarize, you will be subject to penalties set out in the UBC calendar (http://www.calendar.ubc.ca/vancouver/index.cfm?tree=3,54,111,959) If you would like to learn more about academic misconduct, visit the UBC Library's website on academic integrity (http://learningcommons.ubc.ca/guide-to-academic-integrity/). Examples of academic misconduct can also be found in the UBC Annual Report on Student Discipline (http://universitycounsel.ubc.ca/discipline/). Academic honesty is an essential requirement in an institution of higher learning. Academic misconduct not only has serious consequences for your education at law school, it may also have implications for your future plans in the legal profession.
Taxation 410/565 3 Course Outline and Reading Part 1: Administration, Treaties, Residence, and International Tax Avoidance (11 classes) Jan. 5 Course Introduction Introduction to the Course o Organization of Course o Materials o Evaluation Introduction to International Tax Law o Residence Jurisdiction o Source Jurisdiction o Juridical Double Taxation o Sources of International Tax Law Suggested Reading Li, Cockfield and Wilkie, pp. 1-36 73-75, and 96-98 Arnold and McIntyre, pp. 1-14, 15-16, 21-22, and 27-30 Residence Jurisdiction: ITA, s. 2(1) Source Jurisdiction: ITA, s. 2(3), 115-116 (Division D), 118.94, 212-218.1 (Part XIII) Jan. 7 Introduction to International Tax Administration and Dispute Resolution Disclosure Requirements Exchange of Information Assistance in the Collection of Tax Dispute Resolution o Mutual Agreement Procedure o Arbitration Multilateral Co-operation and the OECD Li, Cockfield and Wilkie, pp. 367-77 and 421-445 Commentary to the OECD Model Treaty, Articles 25-27 Disclosure Requirements: ITA, s. 233.3 Exchange of Information: OECD Model Treaty, Art. 26; OECD Model Tax Information Exchange Agreement; Canada U.S. Treaty, Art. XXVII; Canada U.S. Information Exchange Agreement Assistance in the Collection of Tax: OECD Model Treaty, Art. 27; Canada U.S. Treaty, Art. XXVIA Dispute Resolution: OECD Model Treaty, Art. 25; Canada U.S. Treaty, Art. XXVI
Taxation 410/565 4 Jan. 12 Introduction to Tax Treaties Scope and Purposes of Tax Treaties Model Treaties Legal Status of Tax Treaties Li, Cockfield and Wilkie, pp. 39-55 OECD Model Treaty Arnold and McIntyre, pp. 103-12 and 116-36 Supplementary materials: OECD, UN, and US Model Tax Treaties Scope of Treaties: OECD Model Treaty, Art. 1 and 2; Canada U.S. Treaty, Art. I and II; Canada U.K. Treaty, Art. 1 and 2 Legal Status of Tax Treaties: Income Tax Conventions Implementation Act, 2001, S.C. 2001, c.30; ITA, s. 110(1)(f) Jan. 14 Interpretation of Tax Treaties Sources of Interpretation Methods of Interpretation Definitions and Undefined Terms Li, Cockfield and Wilkie, pp. 55-69 Materials, chapter 1, pp. 2-22 Arnold and McIntyre, pp. 112-16 Methods of Interpretation: Vienna Convention on the Law of Treaties, Art. 31, 32, 33 Definitions and Undefined Terms: OECD Model Treaty, Art. 3; Canada U.S. Treaty, Art. III; Canada U.K. Treaty, Art. 3; Income Tax Conventions Interpretation Act, s. 3, 5, 6 Jan. 19 and 21 Individual Residence Domestic Rules Treaty Rules Change of Residence o Emigration from Canada o Immigration to Canada Part-Time Residence Li, Cockfield and Wilkie, pp. 75-83 Materials, chapter 2, pp. 23-110 and 156-166 Arnold and McIntyre, pp. 16-21 Krishna, pp. 100-114 Commentary to the OECD Model Treaty, Article 4, paragraphs 1-20
Taxation 410/565 5 Individual Residence: ITA, s. 250(1)-(3), 250(5); OECD Model Treaty, Art. 4(1) and (2); Canada - U.S. Treaty, Art. IV(1), (2) and (5); Canada U.K. Treaty, Art. 4(1) and (2) Change of Residence o Emigration from Canada: s. 128.1(4), 128.1(8), and 128.1(9); Canada U.S. Tax Treaty, Art. XIII(5) and (6); Canada U.K. Treaty, Art. 13(10) o Immigration to Canada: s. 128.1(1)-(3), 128.1(6) and (7) Part-Year Residents: ITA, s. 114, 118.91 Jan. 26 Residence of Corporations, Trusts, Partnerships and Hybrid Entities Domestic Rules Treaty Rules Li, Cockfield and Wilkie, pp. 84-96 Materials, chapter 2, pp. 110-133 Arnold and McIntyre, pp. 16-21 Krishna, pp. 117-119 Materials, pp. 133-156 Commentary to the OECD Model Treaty, Article 4, paragraphs 21-24 Commentary to the OECD Model Treaty, Article 1, paragraphs 2-6.7 Corporate Residence: ITA, s. 250(4), (5), (5.1), (6); OECD Model Treaty, Art. 4(1) and (3); Canada - U.S. Treaty, Art. IV(1) and (3); Canada U.K. Treaty, Art. 4(1) and (3) Trust Residence: ITA, s. 94 and 104 Partnerships and Other Fiscally-Transparent Entities: ITA, s. 96 and 212(13.1); Canada U.S. Treaty, Art. IV(6) and (7) Jan. 28 and Feb. 2 Tax Treaty Shopping Abuse of Tax Treaties General Anti-Avoidance Rule Beneficial Ownership Limitation of Benefits Li, Cockfield and Wilkie, pp. 398-417 Materials, chapter 3, pp. 167-239 and 255-267 Arnold and McIntyre, pp. 129-132 Krishna, pp.115-117 Materials, pp. 240-255 Commentary to the OECD Model Treaty, Article 1, paragraphs 7-26 Commentary to the OECD Model Treaty, Article 10, paragraphs 10-12.7; Article 11, paragraphs 9-13; and Article 12, paragraphs 4-6 ITA, s. 245; Income Tax Conventions Interpretation Act, s. 4.1 Canada U.S. Treaty, Art. XXIXA; Canada U.K. Treaty, Art. 10(7), 11(11), and 12(8)
Taxation 410/565 6 Feb. 4 Non-Arm s Length Transactions (Part 1) Arm s Length Principle Transfer Pricing Li, Cockfield and Wilkie, pp. 103-146 Materials, chapter 3, pp. 267-292 Arnold and McIntyre, pp. 55-80 and 83-86 Krishna, pp. 1395-1402 Commentary to the OECD Model Treaty, Article 9 OECD Transfer Pricing Guidelines Arm s Length Principle: OECD Model Treaty, Art. 9; Canada - U.S. Treaty, Art. IX; Canada U.K. Treaty, Art. 9 Transfer Pricing: ITA, s. 69(1), 247, and 17 Feb. 9 Non-Arm s Length Transactions (Part 2) Thin Capitalization Li, Cockfield and Wilkie, pp. 219-226 Materials, chapter 3, pp. 292-97 Arnold and McIntyre, pp. 55-80 and 83-86 Krishna, pp. 1395-1402 Commentary to the OECD Model Treaty, Article 9, paragraph 3 ITA, s. 18(4)-(6), Canada-U.S. Treaty, Art. XXV(7)-(8) Part 2: Taxation of Non-Residents (8 classes) Feb. 11 Introduction Policy Considerations Concept of Source Part I and Part XIII Li, Cockfield and Wilkie, pp. 151-160 Arnold and McIntyre, pp. 22-23 Krishna, pp. 1361-1369 ITA, s. 2(3) ITA, ss. 115-116 ITA, Parts XIII and XIV
Taxation 410/565 7 Feb. 23 Employment Income Employment in Canada Deemed Employment in Canada Effect of Tax Treaties Li, Cockfield and Wilkie, pp. 163-169 Materials, chapter 4, pp. 299-332 Arnold and McIntyre, pp. 22-23 Krishna, pp. 1361-1369 Commentary to the OECD Model Treaty, Article 15, 16, 19 and 21 Employment: ITA, s. 2(3)(a), 115(1)(a)(i) Deemed Employment in Canada: ITA, s. 115(1)(a)(v), 115(2) Effect of Tax Treaties: OECD Model Treaty, Art. 15, 16, 19 and 21; Canada - U.S. Treaty, Art. XV, XIX, XX and XXII; Canada U.K. Treaty, Art. 15, 18, 19 and 20A Feb. 25 Business Income (Part 1) Carrying on Business in Canada o Ordinary Meaning o Extended Meaning Tax Withholding Li, Cockfield and Wilkie, pp. 171-180 and 237-239 Materials, chapter 5, pp. 333-347 Arnold and McIntyre, pp. 23-24 Krishna, pp. 1369-1371 Carrying on Business in Canada: ITA, s. 2(3)(b), 115(1)(a)(ii), 253 Tax Withholding: ITA, s. 153(1)(g) and Reg. 105 March 1 Business Income (Part 2) Fixed Base or Permanent Establishment Li, Cockfield and Wilkie, pp. 180-190 Materials, chapter 5, pp. 348-383 Krishna, pp. 114-115 and 1372-1381 Commentary to the OECD Model Convention, Article 5 and 7 OECD Model Treaty, Art. 5, and 7; Canada U.S. Treaty, Art. V and VII(1); Canada U.K. Treaty, Art. 5, 7(1) and 14
Taxation 410/565 8 March 3 Business Income (Part 3) Artistes and Athletes Attribution of Income Li, Cockfield and Wilkie, pp. 190-91, 236-237 and 191-195 Materials, chapter 5, pp. 384-408 Krishna, pp. 1385-1387 Commentary to the OECD Model Convention, Articles 7 and 17 Artistes and Athletes: OECD Model Treaty, Art. 17; Canada U.S. Treaty, Art. XVI; Canada U.K. Treaty, Art. 16; ITA, s. 212(5.1) Attribution of Profits: OECD Model Treaty, Art. 7(2)-(4); Canada U.S. Treaty, Art. VII(2)- (7); Canada U.K. Treaty, Art. 7(2)-(4), ITCIA, s. 4 March 8 Capital Gains and Losses Taxable Canadian Property Tax Withholding Effects of Tax Treaties Li, Cockfield and Wilkie, pp. 197-206 Materials, chapter 6, pp. 409-439 Krishna, pp. 1402-1403 Taxable Canadian Property: ITA, s. 2(3)(c); s. 115(1)(a)(iii), 115(1)(b), 248(1): taxable Canadian property and treaty-protected property Tax Withholding: ITA, s. 116 Effects of Tax Treaties: OECD Model Treaty, Art. 13; Canada U.S. Treaty, Art. XIII; Canada U.K. Treaty, Art. 13 March 10 and 15 Income from Property Introduction Domestic Rules o Management and Administration Fees o Interest Income o Royalties o Dividends and Repatriation of Branch Profits Effect of Tax Treaties Li, Cockfield and Wilkie, pp. 99-100 and 207--236 Materials, chapter 7, pp. 440-468, 470-506, and 511-23 Arnold and McIntyre, pp. 24-26 Krishna, pp. 1405-1417 Commentary to the OECD Model Convention, Articles 10, 11 and 12
Taxation 410/565 9 Introduction: ITA, s. 212(1), (2), (4), (13), and (13.1)-(13.3), 215, 216, 216.1, 217; Reg. 805 Domestic Rules o Management and Administration Fees: ITA, s. 212(1)(a), (4) o Interest Income: ITA, s. 212(1)(b), 212(3), 212(6)-(8), 212(13.3) and 214(15) o Royalties: ITA, s. 212(1)(d), 212(5), and 212(13.2) o Dividends and Repatriation of Branch Profits: ITA, s. 212(2), 214(3)(a), 212.1, 219, and 219.2 Tax Treaties o Management Fees: Canada-Barbados Tax Treaty, Art. XIII; Canada Jamaica Tax Treaty, Art. XIII o Interest Income: OECD Model Treaty, Art. 11; Canada - U.S. Treaty, Art. XI; Canada U.K. Treaty, Art. 11 o Rents and Royalties: OECD Model Treaty, Art. 6 and 12; Canada - U.S. Treaty, Art. VI and XII; Canada U.K. Treaty, Art. 6 and 12 o Dividends and Repatriation of Branch Profits: OECD Model Treaty, Art. 10; Canada - U.S. Treaty, Art. X; Canada U.K. Treaty, Art. 10 and 22(3)-(4) Part 3: Taxation of Canadian Residents on Foreign Source Income (7 classes) March 17 Introduction Policy Objectives o Relief of Double Taxation o Prevention of Domestic Tax Deferral Alternative Approaches to Achieve Policy Objectives o Exemption, Deduction, and Credit o Look Through, Deemed Residence, Presumed Income Li, Cockfield and Wilkie, pp. 243-262 Arnold and McIntyre, pp. 22-23 Krishna, pp. 1361-1369 Commentary to the OECD Model Convention, Article 23 ITA, s. 20(11), 20(12), 113 and 126 ITA, ss. 90-95 OECD Model Treaty, Art. 23; Canada U.S. Treaty, Art. XXIV; Canada U.K. Treaty, Art. 21 March 22 and 24 Foreign Tax Credits and Deductions Creditable Taxes Source of Income Computation Relief for Excess Credits Anti-Avoidance Rules Li, Cockfield and Wilkie, pp. 263-286 Materials, chapter 8, pp. 525-586
Taxation 410/565 10 Arnold and McIntyre, pp. 30-42 and 50-53 Krishna, pp. 658-662 Creditable Taxes: ITA, s. 126(7) non-business income tax and business income, 126(4), 126(5), 126(6), 126(4.11)-(4.13) Computation o Non-Business Income Tax: ITA, s. 126(1), 126(7) tax otherwise payable under this o Part (para. (a)), 126(9), 4(1) and (3), 20(11) and 20(12) Business Income Tax: 126(2), 126(2.1), 126(7) tax otherwise payable under this Part (paras. (b) and (c)), 126(9), 126(7) unused foreign tax credit, 126(2.3) Non- Business- Income Tax Relief for Excess Credits: ITA, s. 110.5 and 111(8) Anti-Avoidance Rules: ITA, s. 126(4.1) to (4.5), 126(7) economic profit and 20(12.1) March 29 Foreign Affiliates (Part 1) Introduction Foreign Affiliates and Controlled Foreign Affiliates Li, Cockfield and Wilkie, pp. 303-321 Materials, chapter 9, pp. 589-596 Arnold and McIntyre, pp. 42-47 and 87-99 Krishna, pp. 1327-1335 Foreign Affiliates and Controlled Foreign Affiliates: ITA, s. 95(4) direct equity percentage and equity percentage, s. 95(1) foreign affiliate, s. 95(1) controlled foreign affiliate March 31 Foreign Affiliates (Part 2) Income Inclusion in respect of Shares of Controlled Foreign Affiliates o Foreign Accrual Property Income o Tax Consequences Li, Cockfield and Wilkie, pp. 322-335 Materials, chapter 9, pp. 597-674 Arnold and McIntyre, pp. 42-47 and 87-99 Krishna, pp. 1335-1355 Foreign Accrual Property Income: ITA, s. 95(1) foreign accrual property income, taxation year, income from property, investment business, investment property, foreign bank, trust company, lending of money, licensing of property and excluded property, 95(2.1), 95(1) active business and income from an active business, 95(2), 95(2.2) to (2.5), 95(3), 95(4) relevant cost base, 95(1) lease obligation, and Reg. 5903 Tax Consequences: ITA, s. 91(1), 95(1) participating percentage, 95(4) equity percentage, and Reg. 5904; ITA, s. 91(2) and (3), s. 91(4), 95(1) foreign accrual tax and relevant tax factor, Reg. 5907(1.3); ITA s. 91(5), and Reg. 5900(3); and ITA, s. 92(1)
Taxation 410/565 11 April 5 Foreign Affiliates (Part 3) Dividends from Foreign Affiliates o Dividend Inclusion and Deductions o Surplus Accounts o Election on Sale of Shares o Adjustments to Cost Base o Anti-Avoidance Rules Li, Cockfield and Wilkie, pp. 335-350 Materials, chapter 9, pp. 675-704 Arnold and McIntyre, pp. 42-47 and 87-99 Krishna, pp. 1327-55 Dividend Inclusion and Deductions: ITA, s. 90 and 113, Reg. 5907(1.01) Reg. 5901, Reg. 5900(1) and (2), Reg. 5907(1) underlying foreign tax, underlying foreign tax applicable and whole dividend, Reg. 5906, s. 95(1) relevant tax factor Surplus Accounts: Reg. 5907(1) exempt surplus, exempt earnings, net earnings, earnings, exempt loss, net loss, loss, exempt deficit, taxable surplus, taxable earnings, taxable loss, taxable deficit, net surplus, Reg. 5905, Reg. 5907(1.02), (2) to (3), and (5) to (11.2) Election on Sale of Shares: ITA, s. 93, Reg. 5902 Adjusted Cost Base of Foreign Affiliate: ITA, s. 92(2) and (3) Anti-Avoidance Rules: ITA, s. 95(6) and 212.3 April 8 Non-Resident Trusts and Offshore Investment Funds Non-Resident Trusts o Former section 94 o New section 94 Offshore Investment Funds o Definition o Tax Consequences Li, Cockfield and Wilkie, pp. 287-301 and 353-362 Materials, chapter 8, pp. 800-822 and 829-833 Arnold and McIntyre, pp. 99-102 Krishna, pp. 1421-1463 Materials, chapter 10, pp. 705-800 and 823-828 Non-Resident Trusts o s. 94 Offshore Investment Fund Property o o TBA Review Class Definition: ITA, s. 94.1(1)(a) to (e), 94.1(2) non-resident entity Tax Consequences: ITA, s. 94.1(f), (g); 94.1(2) designated cost ; 94.1(3); Reg. 4301