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CHAP INTRODUCTION TO INTERNATIONAL TAXATION LECTURER: Dang Thi Bach Van(MA) Dang Thi Bach Van 5/9/18 CONTENT Essential concepts in international taxation Tax planning in multinational enterprises Tax administration Role of supranational organizations Cross-border enforcement of taxes BEPS project Dang Thi Bach Van 5/9/18 Questions Think about tax in the context of a single jurisdiction  tax in a global context Is there any international “ tax system”? Dang Thi Bach Van 5/9/18 INTRODUCTION  Increasing integration  MNEs – cross border transactions >< international tax issues  Foreign investment  national goverments  tax revenue CONCEPTS International taxation refers to tax levied on the cross border transactions The transactions may take place between two or more persons or entities in two or more countries or tax jurisdictions  Such a transaction may involve a person in one country with property and income flows in another INTERNATIONAL TAXATION DEFINE International tax refers to the international aspects of the income tax laws of particular countries  Các nguyên tắc đánh thuế áp dụng cho giao dịch hai nhiều quốc gia  Thuế ln mang tính chất quốc gia, khơng mang tính quốc tế  Khơng có tòa án thuế quốc tế quan quản lý vấn đề riêng thuế quốc tế Questions What determines the right of a country to levy tax on a person or company? What connection, if any, need there be between taxpayer and the tax authority?  Most countries use the principles of source and residence Dang Thi Bach Van 5/9/18 Essential concepts in international taxation Home and Host Country + In Business Context: Home Country refers to the country where the headquarters is located Host Country refers to the foreign countries where the company invests Dang Thi Bach Van 5/9/18 Essential concepts in international taxation Tax jurisdiction: the extent of a country’s right to tax Two principles are therefore in common use around the world to determine the extent of a country’s tax jurisdiction: RESIDENCE & SOURCE Dang Thi Bach Van 5/9/18 Tax jurisdiction Under the resident jurisdiction: A country may reserve the right to tax its residents on their worldwide income and gains Under the source jurisdiction: a country reserves the right to tax not only the worldwide income and gains of its tax residents, but also the income and gains of non-residents arising within its border 10 Dang Thi Bach Van 5/9/18 Tax administration The economic crisis led to increased pressure on tax administrations to ensure the maximum amount of revenue is collected  need to close the tax gap; Recent developments in the area of cooperation between the tax authorities in combating aggressive tax avoidance include the formation of the Joint International Tax Shelter Information Centre, based in Washington and London and entailing information sharing between the US, UK, Australia, Canada and Japan.# 28 Dang Thi Bach Van 5/9/18 ROLE OF SUPRANATIONAL ORGANIZATIONS Several supranational organizations have emerged and developed in the last century with the aim of encouraging international trade whilst providing a level playing field for their member countries in terms of their ability to attract MNEs to invest in their countries 29 Dang Thi Bach Van 5/9/18 EXAMPLES OF SUPRANATIONAL ORGANIZATIONS OECD_adoption of double tax treaties; establishing principles for the taxation of international money flows resulting from electronic commerce; EU-Promoting harmonization of the tax systems of its member countries; The UN_ promoting measures to ensure that developing countries get their fair share of the tax on profits of MNEs operating within their borders; The IMF_providing technical assistance to countries in developing their tax policy and practice, mainly to low and middle income countries; The G20 (&G8) provide a forum for international cooperation on economic and financial issues facing the member countries,…# 30 Dang Thi Bach Van 5/9/18 CROSS- BORDER ENFORCEMENT OF TAXES Historically, the general principle in international law has been that a country will not assist in the collection of taxes charged by another country; However, cooperation in the collection of taxes of other countries is now widespread: Exchange information automatically (eg lists of interest payments by banks), spontaneously; The right to permit tax officials from one country to visit the other country to carry out investigations; Recovery of tax claims; Measures of conservancy# 31 Dang Thi Bach Van 5/9/18 RECOGNITION OF FOREIGN LEGAL ENTITIES Different states have different rules for determining whether a legal entity is to be considered “transparent” or “opaque” for tax purposes 32 Dang Thi Bach Van 5/9/18 RECOGNITION OF FOREIGN LEGAL ENTITIES If an entity is considered to be transparent: Then a state will wish to tax the individuals or other persons who make up that entity; In the case of a partnership, this would mean that the individual partners would find themselves potentially liable to tax in the state in which they are resident 33 Dang Thi Bach Van 5/9/18 RECOGNITION OF FOREIGN LEGAL ENTITIES If an entity is considered to be opaque: Then it will primarily be taxable in the state in which it is established  double taxation Ex: An entity which is established under the law of State A, but whose individual partners are tax resident in state B if state A considers an entity to be opaque, but state B considers it to be transparent, then the profits or income could be taxed in both states  In practice, this is a matter which gives rise to considerable uncertainty in international taxation 34 Dang Thi Bach Van 5/9/18 BEPS – base erosion and profit shifting Base erosion refers to: A reduction of the amount of profits which a country can tax; The reduction of the number of companies and amount of profits that a country can tax Ex: if a company moves its residence to a different country or causes its profits to arise in a different country (eg by transferring its intellectual property IP to another country so that the royalties go there) then the ability of the original country to collect corporation tax will be diminished If payment is made to a non-resident, but the government has to grant a tax deduction for it  that payment is a “base eroding payment” 35 Dang Thi Bach Van 5/9/18 BEPS – base erosion and profit shifting Base erosion and profit shifting activity frequently overlap: shifting tax profits to a lower tax country will erode the tax base of a country from which the profits are being shifted 36 Dang Thi Bach Van 5/9/18 BEPS – base erosion and profit shifting In its communique, the G20 finance ministers made the following statements: Effective taxation of mobile income is a key challenge; Profits should be taxed where functions driving the profits are performed and where value is created; G20 member countries should ensure that international and domestic laws not permit or encourage artificial profit shifting to low-tax jurisdictions; There should be a new single global standard for automatic exchange of information; and All countries should join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters 37 Dang Thi Bach Van 5/9/18 Summary Since individual countries define their tax jurisdictions in slightly different terms, these jurisdictions often overlap Potentially, this can result in taxpayers being liable for tax in two or more countries on the same income or profits International law, usually in the form of bilateral double tax treaties, seeks to alleviate this problem The form and content of international law is strongly influenced by supra-national bodies such as OECD 38 Dang Thi Bach Van 5/9/18 Summary One of the key issues in international tax is the question of jurisdiction, which arises through residence and source The way in which these concepts interact causes potential problems and there is much debate about which one is more important in terms of the allocation of taxing rights between nation states Principles guiding the development of international tax policy include CEN and CIN Much of the focus of current international tax policy development stems from the need to control the tax-planning activities of multinational groups of companies, who have considerable choice available to them as to where to locate their activities so as to potentially achieve tax savings 39 Dang Thi Bach Van 5/9/18 Summary The OECD BEPS project represents a bold attempt to correct perceived problems in the current international tax system The speed with which decisions are being taken in terms of defining the problems, and recommending solutions is alarming, and threatens to cause considerable disruption in the next few years.### 40 Dang Thi Bach Van 5/9/18 REVIEW Tại phải quan tâm đến thuế quốc tế? Có phải thuế quốc tế chi phối phạm vi thu nhập hay không? 41 Dang Thi Bach Van 5/9/18 REVIEW Các hình thức đầu tư nước ngồi có tạo nên hệ thuế tương ứng khác không? Các chủ đề trọng tâm thuế quốc tế gì? 42 Dang Thi Bach Van 5/9/18 ... systems and local-level taxes Some countries have multi-tier tax systems where the federal government collects taxes and the internal divisions of the country also have their own tax systems... right to tax a particular company have often been dealt with successfully in state-level tax system 12 Dang Thi Bach Van 5/9/18 Federal systems and local-level taxes In our study of double tax... does not lose when residents invest overseas It is concerned with equalising the after-tax rate of return on foreign investments with the pre-tax return on domestic investments by treating foreign