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International Commercial Tax

International Commercial Tax

Author: Peter Harris; David Oliver
Publisher: Cambridge University Press
ISBN: 9780521853118
Published In: July 2010
Format: Hardback
Jurisdiction: International ? Disclaimer:
Countri(es) stated herein are used as reference only

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Contents
Author

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Inspired by a postgraduate course the authors have jointly taught at the University of Cambridge since 2001, Peter Harris and David Oliver use their divergent backgrounds (academia and tax practice) to build a conceptual framework that not only makes the tax treatment of complex commercial transactions understandable and accessible, but also challenges the current orthodoxy of international tax norms. Designed specifically for postgraduate students and junior practitioners, it challenges the reader to think about tax issues conceptually and holistically, while illustrating the structure with practical examples. Senior tax practitioners and academics will also find it useful as a means of refreshing their understanding of the basics and the conceptual framework will challenge them to think more deeply about tax issues.

• Conceptual structure focusing on generic tax issues and their solutions aids understanding and facilitates cross-border comparison to highlight peculiarities of particular rules

• Domestic, treaty and EC rules are discussed with respect to particular tax issues, facilitating an holistic approach to tax issues, much as is faced in practice

• Links topics and types of laws with a discussion of how they interact, aiding understanding and encouraging lateral thinking

Preface	xii
List of abbreviations	xiii
Table of cases	xiv
Table of statutes	xxiii
Table of treaties	xxxi
Introduction	1
1 Fundamentals and sources of international tax law	8
1.1 Tax fundamentals	8
1.2 Sources of international tax law and their interrelationship	14
1.2.1 Domestic law	14
1.2.2 Tax treaties	16
What are they and where did they come from?	16
How tax treaties take effect in domestic law	20
Can a treaty create or increase tax?	24
1.2.3 EU Law	25
FEU Treaty	25
Directives	26
1.2.4 Other sources	27
GATT and the WTO	27
European Convention on Human Rights	28
1.3 Approaches to interpretation of material	28
1.3.1 Domestic law	29
1.3.2 Treaty interpretation	30
Vienna Convention	31
OECD Commentaries	34
Which Commentary?	37
Dispute resolution	38
1.3.3 Jurisprudence of the ECJ	38
2 The jurisdiction to tax	43
2.1 Forms of economic allegiance	43
2.1.1 The person	46
2.1.1.1 Who is a person: the tax subject	48
Domestic characterisation of entities	48
Meaning of ‘person’ in the OECD Model	54
2.1.1.2 Residence as a connecting factor	57
Domestic law	57
‘Residence’ under the OECD Model	62
2.1.1.3 Beneficiaries of EU Law	68
2.1.2 The activities	71
2.1.2.1 Characterising income producing activities	71
Domestic characterisation	71
OECD Model characterisation	74
2.1.2.2 Locating the activity	76
Domestic law	76
Assignment of taxing rights under the OECD Model	79
2.1.2.3 Activities covered by EU Law	80
Fundamental freedoms	80
Directives	85
2.2 Divided allegiance: the problem of double taxation	86
2.2.1 Principles	88
Tripartite relationship	88
Economic considerations	89
Cross-border restrictions	91
OECD Model	91
EU Law	95
Interstate relationship	103
Inter-nation equity	103
Harmful tax competition	105
EU Law considerations	108
2.2.2 Methods for relief	111
Double tax relief	112
Interstate relationship	114
3 Source country taxation	118
3.1 The recipient/schedular approach	119
3.1.1 Other income	121
3.1.2 Income from immovable property	123
Immovable property	123
Income from immovable property	126
EU Law	128
3.1.3 Business profits	129
3.1.3.1 Enterprise of a contracting state	130
3.1.3.2 Subsidiaries: exclusive taxation	133
3.1.3.3 Permanent establishments: shared taxation	135
Permanent establishment threshold	136
Physical presence	137
General test	137
Building sites	142
Express exclusions	143
Personal presence	144
Agency permanent establishment	144
Independent agent exception	148
Services PE	149
Position of associated corporations	150
EU Law	151
Attribution of profits: separate enterprise approach	153
Delineating activities	155
Calculating PE profits	158
Real transactions	159
Intra-enterprise dealings	162
3.1.3.4 Discrimination in taxation of business profits	168
OECD Model	168
Permanent establishments	168
Subsidiaries	171
EU Law	176
3.1.4 Dividends, interest and royalties	180
3.1.4.1 Dividends	181
OECD Model	181
Scope of Article 10	181
Limited source country taxation	182
Portfolio investors	182
Direct investors	185
Dividends and PEs	186
EU Law	190
Parent-Subsidiary Directive	190
Fundamental freedoms	193
3.1.4.2 Interest	198
OECD Model	198
Scope of Article 11	198
Limited source country taxation	198
Interest and PEs	200
EU Law	201
Directives	201
Fundamental freedoms	202
3.1.4.3 Royalties	205
OECD Model	205
EU Law	206
3.1.5 Capital gains	207
OECD Model	207
EU Law	211
3.1.6 Income from employment and independent personal services	211
3.1.6.1 Employment	212
OECD Model	212
Employment	213
Salaries, etc.	217
Exercised in	218
Non-resident employers	218
EU Law	219
3.1.6.2 Independent personal services	220
OECD Model	220
EU Law	222
3.2 The payer/deductions	223
OECD Model	223
EU Law	225
3.3 Quantification and characterisation issues	227
3.3.1 Quantification: transfer pricing between associates	228
3.3.1.1 Identifying associates	230
3.3.1.2 Independent enterprise approach	235
Arm’s length pricing	236
Problem areas: services and intellectual property	239
Administrative matters	240
Special PE issues	241
3.3.1.3 Formulary apportionment	242
3.3.1.4 EU Law	243
Fundamental freedoms	243
Common consolidated corporate tax base	245
3.3.2 Characterisation: focus on dividends, interest and royalties	246
3.3.2.1 Defining the boundaries	246
Dividends	247
Interest	248
Royalties	250
3.3.2.2 Thin capitalisation	252
Domestic rules	253
OECD Model	256
EU Law	259
3.3.3 Dual characterisation: reconciliation rules	259
OECD Model	259
EU Law	260
4 Residence country taxation	264
4.1 Foreign tax relief	265
4.1.1 Methods	265
4.1.1.1 Domestic law: unilateral relief	265
Deduction	266
Exemption	267
Credit	269
4.1.1.2 OECD Model	275
Exemption	276
Credit	278
4.1.1.3 EU Law	280
4.1.2 Problems with corporations	282
4.1.2.1 Economic double taxation	283
Domestic law: unilateral relief	284
Portfolio investors	284
Direct investors	285
OECD Model	291
EU Law	291
Parent-Subsidiary Directive	291
Fundamental freedoms	293
4.1.2.2 Controlled foreign corporations	296
Domestic law	299
OECD Model	303
EU Law	308
4.2 Expenses/losses	312
4.2.1 Allocation of expenses between foreign and domestic income	313
Generally	313
EU Law	318
4.2.2 Foreign loss/domestic income	322
Generally	322
EU Law	324
4.2.3 Foreign income/domestic loss	327
Generally	327
EU Law	330
4.2.4 Group relief	333
Generally	333
EU Law	334
5 The limited scope of treaties	343
5.1 Mismatches between source and residence countries	345
5.1.1 Allocation of payment	346
5.1.2 Quantification	353
5.1.3 Timing of payment	358
5.1.4 Characterisation of payment	362
5.2 Beyond the bilateral	368
5.2.1 Mismatch of source: PEs and third countries	370
5.2.1.1 Payments received by PEs	372
Generally	372
EU Law	376
5.2.1.2 Payments made by PEs	378
Generally	378
EU Law	381
5.2.2 Mismatch of residence	382
5.2.2.1 Taxation of the person	382
Generally	382
EU Law	384
5.2.2.2 Payments made by the person: dual source	386
Generally	386
EU Law	388
5.2.3 Intermediaries: re-sourcing and other re-characterisation	388
5.2.3.1 Intermediate country	389
PE	390
Subsidiary	391
Access to treaty network: treaty shopping	391
Access to lower corporate tax	393
5.2.3.2 Source country taxation	394
US Model: limitation of benefits	395
OECD Model: beneficial owner and conduit companies	397
EU Law: most favoured nation and limitation of benefits	403
5.2.3.3 Residence country taxation	407
Foreign tax relief: mixers	407
Intermediary retention: CFC rules	410
EU Law	411
6 Changes of source and residence	416
6.1 Changes of source jurisdiction	418
6.1.1 Creation of source	418
Transfer of assets to PE	418
Transfer of assets to subsidiary	421
6.1.2 Termination of source	422
Transfer of assets from a PE	423
Transfer of assets from a subsidiary	424
6.1.3 Transfer of ownership of source	426
Transfer of a PE	426
Transfer of a subsidiary	428
6.1.4 Variation of form of source	430
6.1.4.1 Conversions	430
PE into subsidiary	431
Subsidiary into PE	433
6.1.4.2 Mergers	437
Assets mergers	438
Corporate mergers	440
6.1.4.3 Divisions	443
Assets divisions	444
Corporate divisions	446
6.2 Changes of residence jurisdiction	448
6.2.1 Commencing residence	448
6.2.2 Cessation of residence	449
7 Bilateral administrative issues	452
7.1 Exchange of information	453
7.1.1 OECD Model	454
7.1.2 Information exchange agreements	455
7.1.3 EU Law	456
7.2 Dispute resolution	457
7.2.1 OECD mutual agreement procedure	458
7.2.2 EU Arbitration Convention	462
7.3 Assistance in collection of tax	464
7.3.1 OECD Model	465
7.3.2 Assistance in collection agreements	466
7.3.3 EU Law	466
Conclusion	467
References	470
Index	477