Discuss the International conceptual basis for tax jurisdiction?

Answer 1

Taxation and international law concepts There are no formal laws (e.g. conventions) under public international law that inform a sovereign state how to raise taxes and from whom they should be raised. In this sense there is no such thing as "international tax". However, it could be said that there are generally accepted principles that apply similarly to that commonly cited in international law of "territoriality" and "nationality". The right of a state to tax income, profits or gains from transactions or sources arising within its territory is referred to as "source taxation" and is a territorial concept. Some states or municipalities tax purely on the basis of territoriality, e.g. Hong Kong. Most do not. All states, however, do apply the principal of source taxation within their tax regimes. Further, the right to tax "residents" of a particular state is similar to that of the "nationality" concept in that the place of "residence" of a person (including artificial persons, such as companies) determines whether a person is liable to tax in a particular jurisdiction. The methods for determining residence include physical presence in a state for a particular duration, a home and economic connections. In the case of the US it includes citizenship. "Source taxation" and "residence" are recognised by the model tax treaties of both the Organisation for Economic Co-Operation and Development (OECD), which was formed in 1960 and has around 30 member states, and the United Nations (UN), formed in 1945 and which has around 190 members and includes the OECD member states. The OECD and UN model tax conventions have broad similarities and are designed for treaties to be concluded by counties which are fully developed economically (in the case of the OECD Model) and those that are developing (in the case of the UN Model). Both amplify the concepts of source and residence in relation to double taxation and the relief of double taxation. The question arises as to which country has prior taxing rights. Is it the source country or the country of residence? The answer under the OECD and UN model tax treaties is generally (within limits) the source country. Therefore the residence country will either give a credit for the tax incurred in Another Country on the same source of income, profits or gains, or alternatively will exempt it from tax. Both the UN and OECD model treaties and their commentaries play a profound influence in the conclusion of tax treaties internationally. The principles surrounding OECD and UN model tax treaties go back to the time when the League of Nations was in existence, between the First and Second World Wars. The League was the forerunner organisation of the UN. The Convention creating the OECD recognises the existence and purposes of the UN. It also has as its aim sustainable growth and the economic well being of its peoples. In general terms the OECD has been very active in a number of tax areas, besides that of the model tax treaty. Issues such as transfer pricing, thin capitalisation, the taxation of permanent establishments and e-commerce have been addressed.