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					Introduction
and Fundamental Principles
Ljublana July 2011




Principles of International Taxation
                                       May 2008
Content


The fundamentals of taxation
International Taxation?
Basic Concepts of International Taxation
Double taxation




Principles of International Taxation
                                           May 2008
Fundamentals of Taxation

Basic Terminology


• Tax = payment to support cost of government. (contrast fee,
  fine)

• Taxpayer = person required to pay tax (includes individuals
  and corporations)
   • May be different from person who administers the payment
     of tax – tax agent

• Jurisdiction is the right of a government to tax.



Principles of International Taxation
Fundamentals of Taxation

Tax Formula


• Tax Base X Tax Rate = Tax Revenue
   – Tax Base:
      • an item, occurrence, transaction, or activity with respect
        to which a tax is levied
   – Tax Rate:
      • a percentage multiplied times the tax base to determine
        tax revenue
   – Tax Revenue:
      • total tax collected by the government and available for
        public use

Principles of International Taxation
Fundamentals of Taxation

Transaction or Activity-Based Taxes


• Transaction (event) based taxes
   – VAT, sales tax, excise tax
   – estate tax, gift tax

• Activity based tax
   – Income tax
       • Individuals
       • Legal Entities




Principles of International Taxation
Fundamentals of Taxation

Tax Policy


• Formulated by the government
   – Depends on a political process
   – Can be influenced by stakeholders

• Helps to understand and interpret law

• Gives indication relevant for tax managers
  – Evolution of tax base and rate
  – Possible tax audits


Principles of International Taxation
Fundamentals of Taxation

Sources of tax law
• Statutory authority:



• Administrative authority:



• Judicial authority:




Principles of International Taxation
Content


The fundamentals of taxation
International Taxation?
Basic Concepts of International Taxation
Double taxation




Principles of International Taxation
                                           May 2008
International Taxation?

International Taxation


•    Just a term, not a new tax
•    used to refer to underlying principles
•    that govern the situations and transactions
•    when 2 or more taxing jurisdictions
•    clash/apply to a business situation or transaction




Principles of International Taxation
International Taxation?

Sources


• Domestic Law provisions
   – Defining the concept of tax obligations
   – Eliminating double taxation

• International Tax Treaties
   – Eliminating the possible double taxation
   – Eliminating tax evasion
   – Providing for legal framework for cooperation between tax
     administrations


Principles of International Taxation
Content


The fundamentals of taxation
International Taxation?
Basic Concepts of International Taxation
Double taxation




Principles of International Taxation
                                           May 2008
Basic Concepts of International Taxation




• Definition of tax liability
   – Taxpayers
               • Persons resident in the country
               • Persons resident in other Jurisdiction
       – Scope (Tax Base)
          • Income from the whole world
                       – Unlimited (worldwide) tax liability
               • Income from the sources in the country
                       – Limited tax liability
       – Concept
          • Residence
          • Source
Principles of International Taxation
Basic Concepts of International Taxation

The Function of Residence


• Domestic law
   • Personal or economic attachment to a jurisdiction
   • Connecting factor to worldwide tax liability

• Tax Treaties
   • Determining the applicable tax treaty
       • Determining the entitlement to treaty benefits
       • Determining the entitlement to double tax relief
       • Presenting the case for a mutual agreement procedure


Principles of International Taxation
Basic Concepts of International Taxation

Residence of Individuals (Domestic Law)


• Factors:
   • Physical presence
   • Availability of dwelling
   • Centre of vital interests (economic, social or family)
   • Permanent or principal residence
   • Habitual, usual or customary place of abode
• Intention to reside permanently, but no minimal threshold is
  normally required (e.g. Brazil)
• Residence permit (US green card) or certificates
• Relevance of the duration of the stay (183-days basis)
Principles of International Taxation
Basic Concepts of International Taxation

Residence of Companies (Domestic Law)


• Formal connecting factors:
   • Place of incorporation (US)
   • Statutory seat or head office (Germany)
   • General meeting of shareholders
   • Place where books and records are kept


• Substantive connecting factors:
   • Central management and control (UK)
   • Place of effective management (France)
   • Place of main activity (Israel before 2003) or main business
     purpose (Italy)


Principles of International Taxation
Basic Concepts of International Taxation

Income from Sources


• Normally income derived:

       – From business/economic activities

       – Return from investments

       – Other payments/ or income in kind




    *connectedthinking
Principles of International Taxation         pwc
Basic Concepts of International Taxation

Sources of income

    •    Income from selling goods/services   •   Capital gains
         in Kazakhstan
                                              •   Fines, penalties
    •    Income from managerial, financial,
         consultancies, auditing, legal       •   Dividends
         services, and software maintaining
         services
                                              •   Interest
    •    Income from immovable property
                                              •   Royalty
    •    Individual employment income
                                              •   Lease payment
    •    Remuneration of managers
                                              •   Pensions
    •    Income in the form of charge-free
         transfer of capital                  •   Winnings

                                              •   Other
Principles of International Taxation
 Withholding Tax




      Dividends, Interest
      Insurance premiums paid on risk insurance agreements

      Insurance premiums paid on risk re-insurance agreements

      International transportation services

      Other income from selling goods/services,
      managerial/financial consultancies, capital gains,
      royalty, etc.



Principles of International Taxation
Content


The fundamentals of taxation
International Taxation?
Basic Concepts of International Taxation
Double taxation




Principles of International Taxation
                                           May 2008
Double Taxation

Impact of Double Taxation


• Tax in general is a transaction cost

• Double taxation means double the cost
   – Reduces after tax profit
   – Activities can result in loss

• Obstacle to business and investment




Principles of International Taxation
Double Taxation

Elimination of Double Taxation


• Based on Domestic law
   – Unilateral relief


• Based on International Agreements
   – Double Tax Treaties




Principles of International Taxation
Double Taxation

Looking ahead…


• Double Tax Treaties

• Interpretation

• Methods of Elimination of Double Taxation




Principles of International Taxation

				
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