International Taxation

International Taxation

Approaches to International Taxation

3. International Taxation

The study of international taxation is the study of coordinating the tax authority of sovereign countries

Indisciplinary character of IT

Economics: Makro, Mikro

Finance: Public, corporate

Business: accounting

Law: private

Structure of IT

1-Unilateral measures

2-Bilateral/multilateral measures

3- Tax treatment of cross border incomes in line with European (community) law.



Areas

1. Principles of IT

2. Specific issues in the IT

3. International tax planning (basic)

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Jurisdiction to tax




SOVEREIGNITY OF STATE



Sovereignty: Is a reflection of the operation of sovereign power and acceptance within theinternational community of that exercise power

The sovereignty of a modern stare is founded on two independent attributes:

-Legitimacy: the moral aspect of sovereignty

-Power: the physical of sovereignty










STATE OF JURISDICTION




The jurisdiction and competences of a State are part of what defines its sovereignty.

Jurisdiction: is a part ifwhat defines the relationship between the state and its subjects or citizens.

Connotes the power of the state to prescribe and enforce its laws:

JURISACTION: prescriptive jurisdiction, is the power to make rules or decisions

JURISFACTION: enforcement jurisdiction, is the power to enforce those rules or decisions



JURISDICTION TO TAX

Is the jurisdictional power (right)of nation (sovereign state) to tax the income, including the income from International transactions, it depends on connecting factors.

Jurisdiction is traditionally described by reference to a set of connections, expressed as legal principles, which justify the exercise of such power in relation to particular “facts”



CONNECTING FACTORS

There must be a reasonable connectionbetween the taxing power of the State, and the taxpayer or the transaction.

Without a connecting factor between either the taxpayer or the business activity and the tax jurisdiction a State cannot levy it tax.

Possible connecting factors:

Territory, Nationality, Passive personality, Protection of the State, Extra-territoriality.

The exercise of jurisdiction to tax may be based ondifferent connecting factors:

-connection with its territory

-personal connection

-other connections

Connections:

Factual: territorial jurisdiction over person

Legal: nationality, citizenship, incorporation.

Territory:

Is an element of statehood. The principle of territorial jurisdiction reflects the view of the stare as an essentially territorial creature.

The principleof territorial jurisdiction denotes the primacy of the power of the state within its territory.

State has an extensive discretion to submit conduct taking place within its territory to its laws and to prevent the exercise of the power by another state within its boundaries- this is principle of non-intervention.

The relationship between territory and sovereignty:

It does not followthat a Sate must be recognized as having absolute and exclusive control over all that occurs or happens within its territory.

Countries often exercise jurisdiction to tax persons and objects based on territoriality, Reason: a territorial connection justifies the exercise of taxing jurisdiction over taxpayer because a taxpayer can be expected to share costs of running a country which makespossible the production of income.

COUNTRY A may claim taking authority over a citizen of COUNTRY B (he has legal connection with country b) if that individual receives income sourced from the territory of COUNTRY A.

What about cross border operations of citizens of such a country who are abroad? Where they will be taxed?



Personal connection:

As a principle of taxing jurisdiction...