Ch 14 - International Taxation

Question 1

To help reduce double taxation, countries can consider three potential solutions:

Answer 1

1. Exempting foreign-source income from home country taxation.
2. Giving credit for foreign taxes paid to reduce the amount of home country taxation.
3. Making agreements with other countries

Question 2

three main sources of tax law are:

Answer 2

1. Domestic tax law in the country in which the income is generated.
2. Domestic tax law in the country in which the income recipient is resident.
3. Any income tax treaty that is in place between the two countries involved

Question 3

Items that are considered exclusive taxing rights for country of residence under an income tax treaty

Answer 3

• Capital gains not related to immovable property (i.e., real estate)
• Royalties
• Any type of income not covered by a specific provision in an income tax treaty

Question 4

Items that are considered Limited taxing rights for country of income source

Answer 4

• Interest income (in the form of withholding tax)

* Dividend income (in the form of withholding tax)

Question 5

Items that are considered Full taxing rights for country of income source

Answer 5

Income and capital gains from immovable property in the source country

Question 6

two methods the residence country can use to reduce the potential of double taxation

Answer 6

1. Exempting foreign-source income from taxation.

2. Giving credit to residents for foreign taxes paid to the country from which the income was derived.

Question 7

What is the US Savings Clause

Answer 7

right to charge full U.S. taxes on its residents and on individuals who are, or have been, U.S. citizens

Question 8

Trusts have a variety of potential uses, including the following:

Answer 8

• Cross-border estate and succession planning
• Tax-efficient vehicle for investing in foreign jurisdictions
• Maintenance funds for family members
• Asset protection from potential creditors
• Charitable trusts
• Purpose trusts

Question 9

One difference between a trust and a foundation

Answer 9

Unlike a trust, a foundation is a distinct entity that has its own separate legal personality.

Question 10

two types of participants in a hybrid company

Answer 10

• shareholders

* guarantee members who are the beneficiaries

Question 11

Types of tax havens

Answer 11

• Investment based
• Business Activities
• Treaty and special concessions havens
• Residence Havens

Question 12

3 measures against anti-avoidance

Answer 12

• Through controlled foreign company rules
• Through general anti-haven legislation
• General Anti-Avoidance Rule

Question 13

What is controlled foreign company rules

Answer 13

Tax abusive use of foreign companies by requiring resident shareholders to report foreign income as if it were in their own hands.

Question 14

What is general anti-haven legislation

Answer 14

catches anything not covered by the general controlled foreign company rules

Question 15

General Anti-Avoidance Rule

Answer 15

Structure employed complies with all domestic tax rules, but is regarded as aggressive and abusive

Question 16

To determine if the GAAR applies, there is a three-stage test

Answer 16

1. Was the transaction an avoidance transaction?
2. If so, was any tax saved or deferred?
3. If so, were the transactions undertaken for purposes other than to obtain a tax benefit?

Question 17

A trust’s protector usually has the right to

Answer 17

remove and appoint trustees, change the residence of the trust, and sometimes veto decisions that trustees make.