国际重复征税

第二节　国际重复征税

Section 2　International Double Taxation

【The Fundamental】

A. Definitions of International Double Taxation

International tax law governs the taxing rights of sovereign nations. These rights depend on their fiscal jurisdiction. Each country has sovereign rights within its fiscal jurisdiction. Therefore, the substance of state sovereignty is jurisdiction, or the scope within which the effective and acceptable power of the state can be exercised. It is the “right to exercise (in regard to a portion of the globe) to the exclusion of any other state the functions of a state”(Island of Palmas v USA, 1928). The term “fiscal jurisdiction” refers to both (a) the right of legislation and (b) the right of enforcement. A state cannot enforce what it cannot legislate. However, the reverse may be true. A state may legislate, even when it is unable to enforce. There are two schools of thought on fiscal jurisdiction based on differing perceptions of state sovereignty. The first believes that there is no restriction on the state’s right to tax, and that it may be exercised without regard to other states. It is, therefore, not necessary to have a legal connection or link with a jurisdiction, provided there is a valid nexus with that state. The other school maintains that the sovereign right to tax is confined to a territory having a “legally relevant connection” between the state and the taxpayer. Although the issue is still unsettled, both views accept that “connecting factors”^[9]give a state the right to tax. These connecting factors link the taxpayer personally to a particular tax jurisdiction.

Under the “economic attachment”, both states are entitled to tax income arising in their tax jurisdiction. The primary taxing rights remain with the country where the income is earned, i.e. the source state. No tax conflicts should normally arise if all states followed a territorial tax system and restricted their taxing rights to income arising in their own fiscal jurisdiction. However, the residence state retains its worldwide taxing rights to tax the foreign source income of its residents under the “personal attachment”. Tax conflicts arise largely (but not only) due to this right of the residence state that subjects its residents to tax on their foreignsource income.

As double taxation is generally considered undesirable, one of the objectives of international tax principles is to ensure that income is not taxed twice. There should be no need for these principles if every person or source of income were subject to tax in one state only. However, under various domestic laws the tax revenues on the same activity may be shared or the same income taxed by two countries. The sharing of income differs from tax overlaps. The term “double taxation” implies “over-taxation” due to overlapping taxing rights. Double or multiple taxation issues arise when the connecting factors grant competing taxing powers to two or more states on the same income.

International double taxation may be economic or juridical. Economic double taxation^[10]refers to a double tax on the same income in the hands of different persons (Examples: husband and wife, partnership and partners, company and shareholder, parent and subsidiary, etc.). The same tax object is taxed on legally different but economically similar or connected subjects in two jurisdictions (“economic identity of subject”). Juridical double taxation deals with the same tax object and the same tax subject. It is the imposition of comparable taxes by two or more states on the same taxpayer in respect of the some subject matter and for identical periods (“legal identity of subject”).

Juridical double taxation^[11]is the result of a conflict between two tax systems. It arises due to the overlapping claims of tax jurisdictions on interrelated economic activities. The competing powers of fiscal sovereignty lead to double (or multiple) taxation in two or more jurisdictions; alternatively, it can lead to double tax exemption, i.e. non-taxation. International tax law is primarily concerned with juridical (i.e. based on jurisdiction) double taxation.

Although the domestic tax systems in most countries provide for unilateral relief, juridical double taxation conflicts are largely resolved through tax treaties negotiated under the principles of international tax law accepted by sovereign states. Through their distributive rules that avoid double taxation and relief methods when it does arise, they ensure a fair distribution of global tax revenues among nations (inter-nation equity). They also attempt toachieve global tax neutrality^[12]where tax issues do not affect the economic choices of taxpayers on international transactions.

B. Connecting Factor Conflicts

As mentioned above, double taxation issues arise due to tax conflicts when the connecting factors grant competing taxing powers to two or more states on the same income. For tax liability to arise, there must be a taxable event on which a state can exercise its taxing rights, and there must be a person who is liable to pay the tax. Moreover, the two must have some connection with the taxing jurisdiction to be subject to its tax laws. Therefore, the three key components of any taxable transaction are:

(a) Tax subject: the identity of the taxpayer, or a person’s relationship to the taxed object that creates a tax liability;

(b) Tax object: the identity of the subject matter, or the facts that cause the tax liability; and

(c) Connecting factor: there must be a “reasonable connection” between the taxing powers of the state, and the taxpayer or the transaction. Without a connecting factor between either the taxpayer or the business activity and tax jurisdiction, a state cannot levy its tax.

Each country follows its own tax practices under its own legal System, and defines the connecting factors under its own laws. As a result, different countries apply differing definitions of taxable entities and taxable events, and then use varying bases for computing the tax under their own tax accounting rules. For example:

(a) More than one country may claim an item of income or gain as taxable within its jurisdiction. The tax residence of a company may be based on the country of incorporation or management. An individual may be resident in more than one tax jurisdiction. The tax rules in the residence country may not coincide with those applied in the source country.

(b) Different jurisdictions may characterize a taxpayer differently under their domestic law. For example, a partnership may be fiscally transparent in one state and a taxable entity in another state.

(c) The meaning of terms (such as income tax, total income, residence, domicile, immovable property, permanent establishment), and the characterization of transactions may vary in different countries.

These varying definitions lead to connecting factor conflicts, such as:

Source-source conflicts: two or more countries claim the same income of a taxpayer as sourced in their country. Residence-Residence conflicts: two or more countries regard the same taxpayer as tax resident in their country.

Residence—source conflicts: the same income is taxed twice, first by the country where it is derived under its “source rules”, and then in the country where the taxpayer resides under its “residence rules”.

Income characterization conflicts: two states characterize or classify the same income or capital differently and, therefore, apply differing tax provisions.

Entity conflicts: an entity is characterized differently under the domestic laws of the two states and, therefore, it is subject to differing taxation.

Mismatching tax systems: the two tax systems provide differing rules for assessment, definition of taxable income, or computation of taxes. The same income may be subject to different tax systems. The most common form of juridical conflict in international taxation relates to the Residence-Source taxation. A taxpayer satisfies a tax relationship in two states simultaneously. The unilateral tax rules under domestic law may relieve such tax conflicts, but tax treaties normally give a more favorable treatment. Other situations usually require the assistance of specific provisions under tax treaties.

Tax authorities must follow the principles of international law when they enforce their domestic laws abroad. Since a state is unable to exercise its tax law in another state, it sometimes applies indirect pressure on nonresidents and foreigners present in its own territory. Such methods violate the principles of international law. “the mere fact that a state’s judicial or administrative agencies are entitled to subject a person to their personal or” curial “jurisdiction does not by any means permit them to regulate by their orders such person’s conduct abroad”.

Fiscal enforcement provisions on tax issues relating to cross-border transactions available today are limited. Under a tax treaty (OECD^[13]MC^[14]Article 26), the tax authorities of theContracting states may exchange tax information. This Article permits the sharing of tax-related information to prevent tax evasion and frauds, unless it is contrary to the treaty provisions. The EC^[15]Directive 1977 (as amended) provides for assistance on tax matters among member countries. Similar provisions are also contained in the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (1988)^[16], which came into force in 1995. In 2003, the OECD Committee in Fiscal Affairs added a separate Article 27 on the “Assistance in the collection of Taxes” in its Model Convention.

C. Relief from Double Taxation

It is now the practice in virtually all countries to provide relief from double taxation either unilaterally or through a bilateral or multilateral treaty. Relief may take the form of an exemption, a credit, or a deduction.

1. Exemption^[17]System.

The exemption system provides for income that is subject to taxation in two or more states to be taxed in only one and exempted from tax in the others. Income may be exempted in either the host state (the state that is the source of income) or in the home state (the state where the taxpayer resides). Commonly, an exemption system exempts income that has been taxed in a host from further taxation in the home state. To illustrate, assume that the Transnational Nickel Co. (TNC) is a resident company in the state of Alpha. TNC establishes a subsidiary in the state of Sigma. The subsidiary earns $1 000 000 in Sigma and pays a 30 percent tax on those earnings. The balance of the earnings is then paid to TNC. TNC, under an exemption system, would have no tax liability on that income in Alpha. This would be so, even if the income tax rate it would normally pay in Alpha is 40 percent or 20 percent.

2. Credit^[18]System.

The credit system allows the tax paid in one state to be used as a credit against a taxpayer’s liability in another state. The credit will be in the form of a direct credit for an overseas branch or in the form of an indirect credit for a foreign subsidiary.

First, an example of a direct credit: Suppose that the international Business Co. (IBC) is aresident of the state of Beta, with a branch in the state of Omega. IBC has income in Beta of$1 000 000 and the subsidiary has an income of $100 000 in Omega. Assume that Beta has an income tax rate of 50 percent on the worldwide income of its resident’ companies, while Omega has an income tax rate of 30 percent on foreign branch income. Omega will collect$30 000 from the subsidiary, while IBC may then use as a tax credit. IBC’s taxes in Beta(before the credit is taken) will be 50 percent of $1 100 000 (the $1 000 000 of income earned in Beta plus the $100 000 eared in Omega), or $550 000. The tax credit of $30 000 will then be applied, bringing IBC’s tax bill in Beta down to $520 000.

Note, in the preceding example, that the total tax bill paid by IBC amounts to $550 000, which is 50 percent of IBC’s total worldwide income. The 50 percent rate is the same as the higher rate paid in the two countries.

Now, an example of an indirect credit: Assume that the Multinational Sales Co. (MSC), a company in the state of Gamma, has a subsidiary in the state of Lambda. The subsidiary earns$100 000, which is subject to a 30 percent tax in Lambda, or $30 000. To determine the amount of taxes due on the $70 000 dividend paid by the subsidiary to MSC in Gamma, a four-step “grossing up” procedure will be followed.

First, the “deemed” amount of foreign taxes paid by the subsidiary to Lambda will be determined. This is the amount of foreign taxes paid multiplied by the ratio of dividends paid out to the after-tax earnings of the subsidiary.

Lambda Tax×Dividends Paid／After−Tax Earnings = Taxes Deemed paid

$30 000×$70 000／$70 000=$30 000

Second, the dividend is “grossed up” by adding to it the amount of “taxes deemed paid”that was just calculated.

Dividend + Taxes Deemed Paid = Taxable Income

$70 000 + $30 000 = $100 000

Third, Gamma’s taxes are determined before the credit is applied. Assume that Gamma has a 50percent tax rate.

Taxable income×Tax rate = Grossed-up Tax

$100 000×50% = $50 000

Fourth, credit the “taxes deemed paid” to Lambda to the amount of the “grossed-up tax”to determine the actual taxes due to Gamma.

Grossed—Up Tax − Taxes Deemed Paid = Gamma Tax

$50 000−$30 000 = $20 000

Note, as with the direct credit example, the total taxes paid on the $100 000 of income earned by the subsidiary amount to $50 000, or 50 percent: the higher rate of the two countries.

3. Deduction^[19]System.

The deduction system allows a taxpayer to deduct the tax paid to one state from the profits liable to taxation in another state. To illustrate, assume that the Global Commerce Co.(GCC), a company located in the state of Theta, has a branch in the state of Kappa. The branch earns $100 000 and Kappa subjects it to a 40 percent foreign branch tax on the remission of profits to GCC, or $40 000. Theta allows GCC to deduct the tax paid by the branch to Kappa from the income earned overseas. Thus, GCC subtracts $40 000 from $100 000, leaving a taxable income 0f $60 000. This is then subject to Theta’s tax. Assuming that the rate is 50 percent, GCC must pay Theta $30 000 in taxes. Note that the total tax bill in this example is$40 000 paid to Kappa and $30 000 paid to Theta, or $70 000.

D. Comparison of the Double Taxation Relief System

From the perspective of the taxpayer, the most advantageous of the systems of double taxation is the exemption system. By being exempt from tax liabilities in one state, the taxpayer is (generally speaking) subject to a lower overall tax bill. The least advantageous is the deduction system. Because it only allows the tax paid in one state to be deducted from gross income in the other state, the overall tax bill tends to be higher. The principle adverse feature of the credit system is that the taxpayer ends up paying whichever is the higher rate of the two taxing countries. In sum, for most taxpayers, the tax relief systems can be ranked as follows: exemption system-best, credit system-intermediate, and deduction system-worst.

From the perspective of states concerned with raising tax revenues, the ranking would be the reverse of that for taxpayers. The exemption system raises the fewest revenues, the credit system an intermediate amount, and the deduction system the most. Taking in the most tax revenues, however, is not always the principal concern of countries. Host countries often wantto entice foreign businesses to establish branch offices or local subsidiaries, and home countries want to encourage businesses and employees to repatriate profits and incomes earned abroad. As a consequence, the least used of all double taxation relief systems is the deduction system. The most popular-and almost universally applied system-is the credit system.

When asked to interpret double taxation treaties, a municipal court will take into consideration its state’s objectives in granting this type of tax relief. Because home states are seeking to maximize the monies their nationals repatriate, and therefore maximize the tax revenues they can collect, courts in such states construe the relevant provisions in a tax treaty so as to favor the governmental tax-collecting agency. Host states, on the other hand, are looking to encourage foreign investment. Courts in host states, accordingly, generally interpret double taxation treaties in favor of the taxpayer.

(Adapted from Chapter 6 of the WTO and International Economic Law written by Sun Fabai and published by University of International Business and Economics Press in November 2008, and adapted from Chapter 13 of the International Business Law written by Ray August and published by High Education Press in 2002)

[The Reflections]

1. What is the principle of permanent establishment?

2. What kind of incomes does the principle of permanent establishment apply for avoiding the double taxation?

3. What are the differences between economic double taxation and legal double taxation?

4. Please list at least three unilateral measures available to resident countries for avoiding international double taxation?

5. Please list bilateral measures for avoiding international double taxation.

【The In-depth】

International Tax Competition and Double Taxation

Economic policy for international investment is an issue of great importance to both capital-importing and capital-exporting countries. In particular, the tax treatment of income originating from international investment is one of the more significant policy issues,especially since tax policy is often used to attract business, to create jobs, and to increase domestic economic welfare. Accordingly, in recent years the topic of tax competition for international capital movements has arisen on the political and research agenda. The purpose of this paper is to examine the strategic impact of the tax policies of capital-importing and capital-exporting countries on international investment income.

The preliminary question that this study must consider is whether capital income taxes can be sustained when capital is very mobile. As pointed out by Gordon (1992), this question is reasonable, because foreign earnings cannot be monitored and hence cannot be taxed effectively. Problems of monitoring are particularly relevant when foreign investment takes the form of portfolio investment. Some recent studies discuss the importance of information sharing among governments in relation to the income generated from foreign investment. However, the taxation of income originating from foreign direct investment is different from the case of portfolio investment. That is, both capital-importing and capital-exporting countries can effectively levy corporate tax on the income generated from foreign direct investment because the firm is well monitored, and is usually interested in documenting such investment.

However, this presents the issue of overlapping taxation on income generated from foreign direct investment by capital-importing and capital-exporting countries, i.e., international double taxation. In the classical approach, this causes a heavier tax burden on foreign than on domestic direct investment, even if both types of investment yield the same profit. Such bias against international capital flows disturbs the efficient allocation of the world capital stock. In other words, international double taxation breaks two fundamental conditions for an optimal international tax system: namely, economic efficiency and horizontal equity. The classical approach then generally calls for tax treaties to deal with this deficiency.

International double taxation treaties may then involve three possible provisions or tax rules. First, governments can credit the tax paid in the foreign country, up to the amount that would have been incurred under purely domestic taxation. This credit method (CRE) leads to taxation at the higher of the two rates. Second, governments can allow the foreign tax to be deducted from income before the domestic corporate tax is applied. This is titled the deduction method (DED). Finally, foreign investment income can be completely exempted from domestic taxation, such that only the foreign tax is relevant. This is called the exemption method (EXE).

The comparison of these three tax rules usually indicates that CRE and EXE can achieve horizontal equity in the tax burden by full allowance for international double taxation, whichDED cannot. On the other hand, these tax rules clearly differ with respect to incentives to invest abroad, the incentive varying inversely with the generosity of the allowance for foreign country taxes. Thus, the three tax rules differently affect the efficient allocation of capital and, thereby, alter economic welfare. Musgrave (1969), for example, argued that for exogenously given tax rates, CRE yields a capital allocation that results in the highest level of world economic welfare, whereas DED provides a capital allocation that maximizes a capital-exporting country’s economic welfare.

If the various national tax rates are set independent of one another, this conclusion is largely correct. However, in an environment with tax competition, one country’s choice of tax rate will depend on that adopted by another, as well as on other features of the tax rule, including the generosity of the allowance for foreign country taxes paid. Hamada (1966) concluded in the non-cooperative game equilibrium that CRE can allow both countries to be better off than DED. However, Hamada (1966) failed to allow for the possibility of strategic behavior in setting tax rates once CRE is in place. By contrast, Bond and Samuelson (1989) showed that capital flows and economic welfare in both countries would be greater under a regime of DED than under CRE. This appears to be similar to the results obtained by Feldstein and Hartman (1979), which use a different framework, but favor some deduction of foreign country taxes when computing tax liability.

However, these studies all overlook three important factors. First, in the comparison of tax regimes, as well as considering the three tax rules, there is a need to investigate a system where there is no tax allowance for tax paid in a foreign country. Hereafter, such a system is referred to as NON. Few studies consider the impact of the absence of an allowance for double taxation on capital flows and economic welfare through adhering to the intuition underlying the results of the classical work. Second, foreign direct investment is also affected by government decisions concerning its tax systems; that is, both corporate income tax rates and methods of treating foreign taxes at home. For the proper examination of tax competition, it is therefore necessary to consider not only the corporate tax rate, but also the form of double taxation relief as government policy instruments. Last, these analyses, with Musgrave (1969) as the sole exception, have assumed that the capital-exporting country can fully discriminate against foreign direct investment by choosing a different tax rate on foreign source income. A survey of tax systems in more than one hundred countries indicates that, with the exception of some that impose a withholding tax only on income generated in the jurisdictional area, most set a non-discriminatory tax rate on all worldwide income earned by resident citizens. Whythen would countries prefer non-discrimination as a tax principle? The reasoning appears to lie in institutional and political restrictions. According to OECD (2004), in Japan, for example, more than fifty-six thousand administrative staffs are employed, even under the present policy of non-discrimination, and the administrative costs are about one-and-a-half times as much as the net revenue collected. Compared to the principle of non-discrimination, discriminatory taxation significantly complicates the procedure to collect and assess taxes, requiring the use of more administrative staff. We can easily expect that it is then more difficult to administer a system of discriminatory taxation; especially since such a principle appears not to yield large increases in revenue. Moreover, some allowance must be made for compliance cost, which is substantially larger than administrative cost (see, for example, Musgrave and Musgrave, 1989). Hence this would lower overall economic performance because of the superfluous burden. That is, discriminatory taxation has other serious problems, as well as the larger administrative cost. For these institutional and political reasons, most governments adopt non-discriminatory taxation, and we must assume non-discrimination to be a valid tax principle.

To date, few attempts have been made to address these points. The only study to grapple with the first is Oakland and Xu (1996). Oakland and Xu (1996) found that when DED is replaced by NON, the economic welfare of the world economy and the capital-exporting country will, under plausible conditions, actually rise, although that of the capital-importing country will fall. The second and third points were made most dramatically in a recent paper by Janeba (1995). In contrast to Bond and Samuelson, but in line with Gordon (1992) and Bond (1991), Janeba (1995) assumed that the capital-exporting country cannot discriminate against out-flowing capital by choosing different tax rates. Janeba (1995) did so by demonstrating that in a non-cooperative game equilibrium, capital flows, and the economic welfare of both countries are independent of the chosen tax rules.

The works of Oakland and Xu (1996) and Janeba (1995) have made a significant contribution to this field by drawing attention to all possible tax regimes as government policy instruments, and to the realities of discriminatory taxation. However, we still do not know how, with non-discrimination, the absence of a tax allowance affects capital flows and economic welfare in a setting of international tax competition in both corporate income tax rates and double taxation tax rules. The current paper addresses this deficiency.

Contrary to the findings of previous studies, the following three conclusions are drawn from the Nash equilibrium under non-discriminatory taxation on income originating from foreign direct investment. First, no tax allowance is chosen as a tax rule for internationaldouble taxation. Second, the allocation of capital can be efficient from the viewpoint of the world economy. Third, the capital-exporting country gains whereas the capital-importing country loses, as compared with the case where there is any tax allowance. This suggests the following policy implication: from the viewpoint of both the global and the home economies, the capital-exporting country ought not to allow for international double taxation with real non-discriminatory corporate income tax rates.

This paper has examined tax competition with respect to both the corporate income tax rate and the domestic treatment of foreign taxes. The analysis implies the following three outcomes based on the Nash equilibrium. First, no tax allowance is chosen as the tax rule for international double taxation. Second, world economic welfare could be maximized by a zero equilibrium tax rate in the foreign country. Third, the capital-exporting country gains, whereas the capital-importing country loses, compared with the case where there is any tax allowance.

These findings are diametrically opposed to the results of classical studies. The difference seems to arise from the following two factors. First, we have made different assumptions about the economic environment. In other words, previous studies assumed that taxes were not set strategically after a switch in the tax allowance regime, whereas this paper assumes that tax rates are strategically determined by both countries, as tax policy is often used to increase domestic welfare. Second, very few analyses in the past have investigated a non-discriminatory tax system where there is no tax allowance for tax paid in a foreign country.

The result of this paper extends the earlier findings of Janeba (1995), who showed that in the equilibrium of the non-cooperative game with non-discrimination, the capital flows and economic welfare of both countries are independent of tax rules. Moreover, our result would appear to be similar to that obtained by Oakland and Xu (1996). They show that under discrimination, the capital flows and welfare of the world economy and the capital-exporting country will actually increase, although those of the capital-importing country will decrease, when a regime of tax deductibility is replaced by no tax allowance for tax paid in the foreign country. That is to say, it follows that the outcomes of this paper are consistent with the results of some other recent contributions to the field.

Finally, according to these results, this study draws the following policy implication: a capital-exporting country ought not to allow for international double taxation under non-discriminatory corporate income tax rates, from the viewpoint of both global and domestic economies. As shown by Musgrave (1969), the domestic allowance for internationaldouble taxation gives the most efficient allocation of world capital if various nations’ tax rates are set independent of one another. However, in the context of actual non-discriminatory corporate income tax rates competition, it only provides a tax monopoly for a foreign government.

(Written by Tomoya Ida Faculty of Economics, Oita University, Oita, Japan and from the Article“INTERNATIONAL TAX COMPETITION AND DOUBLE TAXATION”.)

[The Terms]

1. Capital-importing country and capital-exporting country: 资本输入国和资本输出国。

2. Tax competition: 税收竞争。

3. Portfolio investment: 证券投资，间接投资。

4. CRE: Credit Method, 抵免法。

5. DED: Deduction Method, 扣除法。

6. EXE: Exemption Method, 免税法。

7. Allowance: 减税，税收减让。

8. Withholding tax: 预提税。

9. Discriminatory taxation：差别税制。

10. Nash equilibrium：纳什均衡，又称非合作博弈均衡。

11. Tax monopoly: 税收垄断。

[The Discussions]

1. The relationship between tax competition and double taxation.

2. The reasons of avoiding double taxation.

3. The effectiveness of measures of avoiding double taxation.

【The Further Sources】

Reuven S. Avi-Yonah, International Tax as International Law: An Analysis of the International Tax Regime, Cambridge University Press, 2007.

Peter Harris and David Oliver, International Commercial Tax, Cambridge University Press, 2010.

Ernest R. Larkins, International Applications of U.S. Income Tax Law, John Wiley ＆ Sons, Inc, 2004.

Cornelia LEFTER, International Double Taxation Avoidance (Domestic Legal Regulations and Fiscal Conventions Concluded by Romania), Theoretical and Applied Economics Volume XVII (2010), No. 9(550).

António Martins, International Financial Investments, Double Taxation of Dividends and“Effective Taxation” in the Portuguese Tax System, Journal of Modern Accounting and Auditing, ISSN 1548,-6583 August 2011, Vol. 7, No. 8.

Georgiana COVRIG, Double Taxation Avoidance: A Factor of Economical Stability, Economics, Management, and Financial Markets Volume 6(2), 2011.

Thomas DICKESCHEID, Exemption vs. Credit Method in International Double Taxation Treaties, International Tax and Public Finance, 2004.