ch 2 jurisdiction to tax 税收管辖权

单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,School of Public Finance and Taxation,SLUC,*,2. Jurisdiction to Tax,School of Public Finance and Taxation,SLUC,1,A. Introduction,1. Two kinds of jurisdiction,A country may impose a tax on income because of a nexus between:,(1)The countrythe activities that generate the income,(2) The countrythe person earning the income,School of Public Finance and Taxation,SLUC,2,Source,jurisdiction,-All countries, that impose an income tax, tax income arising or having its source in their countries.,Residence,jurisdiction,-Persons are taxable on their worldwide income, without reference to the source of income. (Here,residents include individuals and legal entities.,),School of Public Finance and Taxation,SLUC,3,(1) Source jurisdiction+ residence jurisdiction,(2) Source jurisdiction,(3) Source jurisdiction+ residence jurisdiction+,citizen jurisdiction, ex. U.S., Liberia,What can you conclude?,All countries imposing an income tax exercise source jurisdiction,.(p15,p1),School of Public Finance and Taxation,SLUC,4,What if,different countries exercise different tax jurisdictions?,(1)For individual,(2)For legal entity,School of Public Finance and Taxation,SLUC,5,residence jurisdiction,source jurisdiction,invest,Country A,Country B,income,Tax 1,Tax 2,School of Public Finance and Taxation,SLUC,6,The competing claims for tax revenue,based on residence and source would,stifle,international investment and commerce.,In addition,the tax burdens,imposed on persons earning income from cross-border transaction,would be unfair,under traditional tax equity.,School of Public Finance and Taxation,SLUC,7,3. For persons engaging in transnational activities,(1) They face some risks of double taxation.,(2) They have some possibilities for international tax avoidance.,(Why?),A:,These opportunities result from,certain gaps in the residence and source jurisdictions of most countries.,School of Public Finance and Taxation,SLUC,8,Q: Whats the results of under-taxation of income from cross-border transactions?,A:,Under-taxation is inefficient,because it induces taxpayer to engage in the under-taxed activities instead of taxable activities producing a higher before-tax rate of return.,Under-taxation is unfair,because taxpayers earning equal amount of income do not pay equal taxes.,School of Public Finance and Taxation,SLUC,9,Today as in 1934 ,“Anyone may arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase ones taxes.,Judge Learned Hand in Gregory vs.,Helvering,School of Public Finance and Taxation,SLUC,10,Over and over again the Courts have said that there is nothing sinisterin so arranging affairs as to keep taxes as low as possible. Everyonedoes it, rich and poor alike and all do right, for nobody owes anypublic duty to pay more than the law demands.,School of Public Finance and Taxation,SLUC,11,Learned Hand,(1872-1961), Judge, U. S. Court of Appeals,Gregory v. Helvering,293 U.S. 465,(1935), was a,landmark decision,by the,United States Supreme Court,concerned with,U.S. income tax law,. The case is cited as part of the basis for two legal doctrines: the,business purpose,doctrine and the doctrine of,substance over form,.,http:/en.wikipedia.org/wiki/Gregory_v._Helvering,School of Public Finance and Taxation,SLUC,12,The business purpose doctrine is essentially that where a transaction has no substantial business purpose other than the avoidance or reduction of Federal tax, the tax law will not regard the transaction.,School of Public Finance and Taxation,SLUC,13,The doctrine of substance over form is essentially that, for Federal tax purposes, a taxpayer is bound by the economic substance of a transaction where the economic substance varies from its legal form.,School of Public Finance and Taxation,SLUC,14,B. Defining Residence,1. Residence of Individuals,（,1,）,a broad,facts-and-circumstances,test :,dwelling or domicile,abode or residence,School of Public Finance and Taxation,SLUC,15,For example,According to the law of Greece, if one person intend to settle down in Greece, he will become the resident of Greece.,According to the law of England, an adults domicile is decided by his willingness of permanent living.,School of Public Finance and Taxation,SLUC,16,A case,One man was born in Canada in 1910. He joined in the British air force in 1932. He worked in England until he retired in 1961. He still lived in England with his English wife. During his time in England, he kept his Canadian citizenship and passport and had some financial relationship with the persons in Canada. He wished to spend his rest life in Canada with his wife. He said even if his wife died before him, he would still return to Canada.,Did he have a domicile in England?,School of Public Finance and Taxation,SLUC,17,So the judge determined that though the man lived in England for 44 years, he did not have a domicile in England. He only had a residence.,School of Public Finance and Taxation,SLUC,18,U.S.A.,Before 1984 tax reform, a taxpayers domicile is decided by his willingness of living.,But after 1984, it changed to green card standard.,If a foreign taxpayer holds a,green card, he should be regarded as the tax resident of U.S.,Tax resident citizen?,School of Public Finance and Taxation,SLUC,19,A Green Card,or Permanent Resident Card serves as proof of a persons,lawful permanent resident status,in the United States. An individual with a Green Card has the right to live and work permanently in the United States. A persons valid Green Card also means that he or she is registered in the U.S. in accordance with United States immigration law.,School of Public Finance and Taxation,SLUC,20,U.S. Citizenship,is one step beyond permanent residence (Green Card).,US Citizenship,gives the individual the maximum rights available in the United States. United States citizens may also find it advantageous to use a,U.S. passport,when traveling abroad.Most United States citizens acquired citizenship by birth, but persons born in other countries may apply to become U.S. citizens. This process is called ,Naturalization,.,School of Public Finance and Taxation,SLUC,21,(2) an,arbitrary test,:,the number of days of presence in the country,Common rule:,183 days,in a tax year,School of Public Finance and Taxation,SLUC,22,Exceptions:,Pakistan, India, Malaysia: 182 days,Thailand:180 days,New Zealand, Vietnam: 183 days,in any 12 months,Japan, Korea, Argentina,: one year,Peru,: 2 years,School of Public Finance and Taxation,SLUC,23,In practice,1. Most popular:,+,or,+,2. only,:,Bengal, Colombia, Denmark, India, Singapore,Thailand, Vietnam,3. only,or,: Belgium, Greece,School of Public Finance and Taxation,SLUC,24,Q:,Explain the taxpayer of Chinas IIT law.,Overview of PRC Taxation System, of Public Finance and Taxation,SLUC,25,IIT law of P.R. China,An individual,having residence in China,or,having resided in China for one year or more although without a permanent residence,therein shall pay individual income tax,on income from inside and outside China,in accordance with the provisions of this Law.,School of Public Finance and Taxation,SLUC,26,An Individual having residence in China refers to,any individual,habitually residing,in China on account of,domiciliary registration,family ties,or,economic interests,.,Having resided in China for one year or more refers to,the state of residing in China for 365 days in a tax year.,The days on a temporary trip away from China shall not be deducted.,School of Public Finance and Taxation,SLUC,27,A temporary trip away from China, refers to,a trip from China,not exceeding 30 days on one trip,or,the combined number of days on several trips away from China not exceeding 90 days,within one tax year.,School of Public Finance and Taxation,SLUC,28,2. Residence of Legal Entities,The residence of a corporation is generally determined either by reference to its,place of incorporation,or its,place of management,.,School of Public Finance and Taxation,SLUC,29,(1) The place-of-incorporation test:,(Legal domicile),Advantage,: provides simplicity and certainty to the government and the taxpayer.,E.g. Countries that market themselves as,tax havens,typically offer convenient and inexpensive arrangements for incorporation under their laws.,School of Public Finance and Taxation,SLUC,30,Disadvantage:,places some limits on the ability of corporations to shift their country of residence for,tax avoidance,(?),purposes.,Because a corporation should first,liquidate its assets,before it change its place of incorporation. Then it should pay the tax on value added of its assets i.e.,capital gain,.,School of Public Finance and Taxation,SLUC,31,(2) The place-of-management test:,(fiscal domicile),Disadvantage:,It is less certain in its application.,Practical tests include,the location of the companys head office,or,the place where the board of directors meet,.,Advantage:,It is easily exploited for tax avoidance reasons. (,Case on page 19,),School of Public Finance and Taxation,SLUC,32,Another example:,Jacob Schick, the inventor of the Schick disposable razor, transferred his razor patent to a Bermuda corporation that accumulated the royalties; Schick later proceeded to give up his U.S. citizenship and retire to Bermuda, where he lived on the accumulated tax-free profits.,School of Public Finance and Taxation,SLUC,33,One opinion:,The proper purpose of the corporate tax is to impose tax burden on the corporations shareholders. Assuming that purpose, the test of residence of a corporation might properly,be determined by reference to the residence of its shareholders,.,But it is difficult to determine in fact, why?,School of Public Finance and Taxation,SLUC,34,In practice,(1) Only place-of-incorporation test:,Denmark, Egypt, France, Sweden, Thailand, U.S.,(2) Only place-of-management test:,Malaysia, Mexico, Singapore,(3) Both the two tests:,Canada, Germany, India, England, Switzerland,Spain,Portugal, Norway, New Zealand,School of Public Finance and Taxation,SLUC,35,Corporations may also be dual residents. Under the American rule, a corporation that is incorporated in the United States but managed and controlled from England is considered a dual-resident corporation of the United States and England.,Dual residency for corporations may actually be a good thing from a taxpayer perspective, and some corporations may deliberately act to obtain dual-residency status.,School of Public Finance and Taxation,SLUC,36,In particular, if a corporation is expected to incur losses for tax purposes for several years, being a dual resident may allow it to take off the same losses against its taxable income from other profitable enterprises in more than one jurisdiction.,School of Public Finance and Taxation,SLUC,37,Another case,De Beers Consolidated Mines Limited was a corporation of South Africa in 1906.Its head office was in South Africa and the shareholders met in South Africa. The mining activities were in South Africa too. But the board of directors met in London.,Suppose you are the judge, how would you judge the resident status of De Beers Consolidated Mines Limited ?,School of Public Finance and Taxation,SLUC,38,The Upper House of the British Parliament judged that,the meeting of the board of directors was the most important, because it resulted in the actual control of the corporation.,Therefore, it should be the tax resident of England, but not South Africa .,Forward,School of Public Finance and Taxation,SLUC,39,Think:,What test does Chinas Enterprise Income Tax law adopt?,School of Public Finance and Taxation,SLUC,40,Enterprise Income Tax Law of the P. R. of China,Article 2 Enterprises are classified as resident enterprises and nonresident.,A resident enterprise, as referred to in this Law, is an enterprise,established,under the laws and regulations of China,in China,or,an enterprise established under the laws and regulations of another country (region),whose real management bodies are located in China,.,School of Public Finance and Taxation,SLUC,41,A nonresident enterprise,is an enterprise established under the laws and regulations of another country (region) whose real management body is not in China but which has established entities or sites in China, or an enterprise which has not established entities or sites in China but has China-sourced income.,School of Public Finance and Taxation,SLUC,42,Article 22 The tax payable by an enterprise is its taxable income multiplied by the applicable tax rate,minus tax reductions and tax credits,prescribed by the provisions of this Law on preferential tax treatment.,School of Public Finance and Taxation,SLUC,43,3. Treaty Issues Relating to Residence,According the,OECD Model Treaty, a resident of a country is a person taxable in that country “by reason of,his domicile,residence,place of management,or any other criterion of a similar nature.”,The,UN Model Treaty,adds “,place of incorporation,” to that list.,School of Public Finance and Taxation,SLUC,44,How to avoid situations in which a person is considered resident in both countries?,School of Public Finance and Taxation,SLUC,45,For individual:,Tie-breaker rules,of residence jurisdiction:,(1) the place where an individual has a,permanent home,;,(2) the country in which the center of the individuals,vital interests is located,;,(3) the place of the individuals,habitual dwelling,;,(4) the country of,citizenship,.,School of Public Finance and Taxation,SLUC,46,Tie-breaker:,If these tie-breaker rules are ineffective, certain tax officials of the two countries are mandated to determine residence by,mutual agreement.,School of Public Finance and Taxation,SLUC,47,For legal entity:,Place-of-management test,is preferred.,i.e. where the effective management is located.,School of Public Finance and Taxation,SLUC,48,C. Source Jurisdiction,By international custom,a country has the,primary right,to tax income that has its source in that country.,But the concept of source is rather poorly developed in the tax literature and in domestic tax legislation.,The tax treaties following the OECD Model Treaty limit the exercise of source jurisdiction, so many developing countries object them.,School of Public Finance and Taxation,SLUC,49,1. Employment and Personal Services Income,For most countries, income derived from personal services has its source in the country,where the services are performed.,If an individual performs services in more than one country,allocation is based on the amount of time,spent by him in performing services in each country.,School of Public Finance and Taxation,SLUC,50,Examples:,China, U.S.,According to,Regulations for the Implementation,of the Individual Income Tax Law of the Peoples Republic of China,School of Public Finance and Taxation,SLUC,51,Article 5,The incomes cited below,irrespective of whether the payment thereof is made in China or not, shall be deemed income from sources in China:,1.Income derived from,service provided in,China,on account of appointment, employment or contract,2. Income from leasing a property to the lessee to be used in China,School of Public Finance and Taxation,SLUC,52,3. Income from a transfer of a structure, land use right or other assets in China,4. Income from the use of all types of franchise in China,5. Income from interests, dividends and bonuses from companies, enterprises and other economic institutions or individuals in China,School of Public Finance and Taxation,SLUC,53,Exceptions:,Where the,service income is paid,：,Britain,，,Brazil,Where the,contract is signed,：,Ireland,School of Public Finance and Taxation,SLUC,54,(1)Dependent services,: being employed,- where he is employed,(2)Independent services,: without employment,- where his fixed base is located. Ex, clinic, office (accounting firm, architectural firm, design office, office of legal affairs),School of Public Finance and Taxation,SLUC,55,Both the OECD and UN Model Treaty limit source country taxation of income derived from,dependent services,if certain conditions as follows are met: (,detail in chapter 6,),School of Public Finance and Taxation,SLUC,56,(1) The person performing the services must be present in the source country for,no more than 183 days.,(2) The compensation must be paid by or on behalf of a,nonresident employer,.,(3) A PE located in the source country must not claim a tax deduction for the compensation paid.,Review: relevant regulations of IIT law of China,School of Public Finance and Taxation,SLUC,57,2. Business Income,(1) The most common pattern is that business income is taxable by a country,only if the income is attributable to a PE in the country.,(,countries with continental legal system,),Countries with legal system of Britain and America,: where the transactions take place.,School of Public Finance and Taxation,SLUC,58,A PE is a,fixed,place of business, such as an office, branch, factory, or mine. (p22,p2),Q:,If a non-resident corporation has a PE in the source country, but the business income isnt attributable to the PE, can the source country tax the income?,School of Public Finance and Taxation,SLUC,59,In practice, two principles:,(1),attribution principle,(2),force of attraction rule,Hows Chinas EIT law?,Article 3,School of Public Finance and Taxation,SLUC,60,A Co. sold a machine to B Co. and got sales profit 500,000$.,Analyze the tax ability of A Co.,(1) A has a PE in China (2) without a PE,A Co. of U.S.,B Co. of China,School of Public Finance and Taxation,SLUC,61,(2) The other pattern is that,the PE rules are used as a threshold requirement,for taxation of nonresidents but,explicit source rules are used for defining the extent of source taxation,.,The U.S. is the most prominent exemplar of the source rule approach.,But most countries lack sophisticated source rules with respect to income and deductions.,School of Public Finance and Taxation,SLUC,62,3. Investment Income,Generally, investment income derived by nonresidents, such as,dividends, interest and royaltie,s, is taxable,through a,withholding tax,imposed by the source country,.,Capital gains typically are no subject to withholding tax.,Q: Is withholding tax an independent tax?,School of Public Finance and Taxation,SLUC,63,Withholding tax is income tax withheld from payees income and paid directly to the government by the payer, which is levied on,passive investment income, such as,dividend, interest, royalty.,School of Public Finance and Taxation,SLUC,64,(1),interest and dividend,-the residence country of the payer,(2),royalty,-the country where the royalties arise,There is no source rule for royalties in the OECD Model Treaty,because exclusive jurisdiction to tax royalty is given to the residence country.,School of Public Finance and Taxation,SLUC,65,(3),rent derived from the use of movable property,-the country where the property is used,(4),capital gains,: under article 13 of the OECD Model Treaty,capital gains are sourced in the country of residence of the seller,unless the gains arise from the sale of business property or immovable property.,School of Public Finance and Taxation,SLUC,66,Most countries entering into tax treaties agree to,some limitations on the withholding tax rates,in order to,provide for some sharing of tax revenue,between the source country and the residence country,.,For instance, according to the tax treaties between China and many countries, the withholding tax rate is 10%.,S