Lynne Oats, Principles of International Taxation , 9th edition, Bloomsbury Publishing, 2023, title pages (5 pages), Glossary.pdf

Question 1

Administrative costs

Answer 1

Public sector or government costs incurred in administering tax legislation and regulations.

Question 2

Alienation

Answer 2

Used in connection with the disposal of assets. The term includes sale, exchange, gift and other means by which a taxpaying entity or individual divests itself of an asset.

Question 3

Alternative minimum tax

Answer 3

A special base-level tax, usually computed as a percentage of gross income is imposed to combat tax minimization by high-income earners. Used in the US

Question 4

Anti-avoidance measures

Answer 4

Measures to combat the avoidance of tax are found in taxation legislation as well as double tax treaties. They may be targeted at specific activities or in some cases a generic rule is used that disregards transactions entered into for tax avoidance purposes.

Question 5

Arbitrage

Answer 5

Taking advantage of inconsistencies between different countries’ tax rules to achieve a more favorable result than would have resulted from investing in a single jurisdiction.

Question 6

Arbitration

Answer 6

The settling of disputes by an independent person or group of people. In international tax, the term is often used in connection with the settling of transfer pricing disputes by a group of people somewhat independent of the taxpayer and tax authority.

Question 7

Arm’s length principle

Answer 7

Unrelated parties dealing with each other wholly independently. Where parties to an agreement are related in some way, it may be that the price is not that which would apply if they weren’t so related. Tax legislation and double tax treaties often give the government power to substitute an arm’s length price, for tax purposes, for the actual price used between related parties.

Question 8

Average Tax rate

Answer 8

Payable tax expressed as a proportion of income. Derived by dividing taxable income by tax payable. It is sometimes referred to as the effective tax rate.

Question 9

Beneficial owner

Answer 9

In common law countries the term is used to mean the people who ultimately enjoy the benefit of an asset. Beneficial and legal ownership may be with different parties, for example in trust or agency relationships

Question 10

BEPS

Answer 10

Base erosion and profit shifting; practices or multinational enterprises aimed at avoiding tax through exploiting differences in tax systems to achieve double non-taxation and through planning so as to have taxable profits located in low tax countries.

Question 11

Bilateral

Answer 11

Involving two states; for instance a double tax treaty is a bilateral agreement

Question 12

Branch profits tax

Answer 12

Many countries subject the profits of branches of foreign companies to an additional tax so that they are treated in the same way as subsidiaries which generally pay withholding tax on profits distributed as dividends.

Question 13

Broad based consumption tax

Answer 13

A generic term to describe consumption tax that applies to a broad range of goods and services as distinct from narrow based which target specific items.

Question 14

Capital export neutrality

Answer 14

An economic term that describes when investors in the capital exporting country are subject to the same effective tax rate regardless of investing at home or abroad; ie the decision whether to invest at home or abroad is neutral

Question 15

Capital import neutrality

Answer 15

An economic term that describes the position where domestic and foreign investors receive the same after-tax rate of return on similar investments in that market

Question 16

Capital gains(losses)

Answer 16

These arise on the disposal of assets and reflect the change in value of the asset between acquisition and disposition

Question 17

Civil law

Answer 17

A body of law based primarily on statutes rather than judicial decisions.

Question 18

Classical system

Answer 18

The classical system of company tax involves taxation of companies as separate entities and no allowance is given to shareholders in receipt of dividend income for company tax paid.

Question 19

Common law

Answer 19

A body of law based on judicial decisions (case law) and legal precedent, rather than statutes of codes. Originating from England, the concept of common law is now embraced in many jurisdictions.

Question 20

Company tax

Answer 20

A tax on company income. Its tax base is corporate profits, which are generally
different from the profits reported for other purposes, such as under financial reporting rules. Also referred to as corporation tax.

Question 21

Competent authority

Answer 21

Under double tax agreements, both countries appoint a representative, such as the Ministry of Finance, to try to resolve disputes that arise from the operation of the treaty. The UK’s competent authority is HMRC.

Question 22

Compliance costs

Answer 22

Costs incurred by taxpayers or third parties in meeting the requirements laid on them by the tax rules and regulations.

Question 23

Consumption tax

Answer 23

A tax levied on the purchase of goods and services. Examples include value added tax, goods and services tax, retail sales tax and manufacture sales tax.

Question 24

Controlled foreign company(CFC)

Answer 24

This term is used in the context of legislation aimed at preventing tax deferral by using companies in low-tax jurisdictions, where the company involved is controlled by the country with the CFC legislation.

Question 25

Customs duties

Answer 25

Taxes on goods imported into a country

Question 26

Death duties

Answer 26

Taxes imposed on property transferred on the death of the owner. Also referred to as inheritance taxes, estate duty, succession tax

Question 27

Depreciation

Answer 27

The allowable portion of the cost of the depreciable assets that are used up during an income-generating activity that can be included in the cost of production

Question 28

Developing country

Answer 28

In this book, the term is used to denote any country classified as other than ‘high income’ by the World Bank. Thus the term includes low income, lower middle income and upper middle income states.

Question 29

Direct taxes

Answer 29

Taxes which generally cannot be shifted from the legal taxpayer to the ultimate consumer
of the good or service. Personal and company income taxes, payroll taxes and property taxes are usually considered to be direct taxes.

Question 30

Dividends

Answer 30

Distribution of profits by a company to its shareholders.

Question 31

Domestic law

Answer 31

A state’s own national law

Question 32

Domicile

Answer 32

A person’s domicile is his or her permanent home, the place to which he or she always intends to return

Question 33

Double non-taxation

Answer 33

A cross-border situation where the taxpayer is not subject to taxation on income. For example a transaction does not attract taxation in the country of residence or the country of source.

Question 34

Double taxation

Answer 34

A cross-border situation where the taxpayer is subject to taxation on the same income in two (or more) different jurisdictions.

Question 35

Effective rate of tax

Answer 35

The actual tax payable on the profits before taxation as shown in the financial accounts as a percentage of pre-tax profits.

Question 36

Energy tax

Answer 36

Taxes on fossil fuels to reduce emissions of carbon dioxide and other greenhouse gases

Question 37

Entity characterization

Answer 37

The process of determining whether a commercial entity is to be recognized for tax purposes or whether the transactions which it enters into are to be treated as entered into
by the individuals who have an interest in the entity.

Question 38

Evasion

Answer 38

The illegal or fraudulent arrangement of affairs to eliminate or reduce tax liability.

Question 39

Excise tax

Answer 39

A tax on the production of a particular good or service. It may be either a fixed rate
(eg dollars per kilo) or ad valorem (varying according to the value, for example, X% per dollar). Cigarettes, alcohol and petrol are among the goods most commonly subjected to an excise tax or duty.

Question 40

Exemptions

Answer 40

Tax rules will often provide exemptions for particular people, items or transactions that would otherwise be taxed.

Question 41

Force of attraction

Answer 41

Under this ‘rule’, permanent establishments are taxed not only on income and property directly attributable to them, but also on all other income earned from sources in the country where the permanent establishment is located.

Question 42

Foreign direct investment

Answer 42

Investment into a state by a non-resident, such as the setting up of a factory as opposed to mere financial investment. The term can refer to investment either via setting up a foreign subsidiary or via a branch.

Question 43

Foreign tax credit

Answer 43

A system too the relief of double taxation so that foreign-sourced income of residents is taxed in the home country but then credit is allowed for foreign tax paid on that income.

Question 44

Formulary apportionment

Answer 44

A mechanism for allocating income or profit between different taxing jurisdictions.

Question 45

Free capital

Answer 45

The amount of non-interest-bearing capital (typically, share capital) that a branch or subsidiary might be expected to have if it was an independent enterprise.

Question 46

GAAP

Answer 46

Generally accepted accounting principles

Question 47

Gift duty

Answer 47

A gift is a gratuitous transfer of property during the donor’s lifetime. Many countries levy a gift tax on such transfers by reference to the value of the gift

Question 48

Immovable property

Answer 48

This term generally covers land and
buildings.

Question 49

Incidence of tax

Answer 49

The legal incidence is the point where tax is legally assessed. The effective or economic incidence refers to the ultimate bearer of the tax.

Question 50

Income

Answer 50

This is a difficult concept to define, but it generally encompasses employment income, business profits, rental income and interest.

Question 51

Income taxes

Answer 51

Income tax is a direct tax, usually imposed annually on the income of individuals and other entities such as companies

Question 52

Indirect taxes

Answer 52

Taxes which can be shifted from the legal taxpayer to the economic taxpayer.
Consumption taxes are usually deliberately designed to be indirect taxes.

Question 53

Integration

Answer 53

In connection with company and personal income taxes, this refers to taxing all company income at the individual’s level using personal income tax rates.

Question 54

Jurisdiction

Answer 54

The authority to make law and to enforce it within a defined geographical area.

Question 55

Know-how

Answer 55

Technical information necessary to reproduce a product or process.

Question 56

Land tax

Answer 56

A tax assessed on the value of land, usually the annual rental value, and may be with or without buildings.

Question 57

Letter box company

Answer 57

A company which has complied only with the bare essentials for registration in a particular country, eg only exists on paper and does not actually conduct any activities.

Question 58

Limitation on benefits

Answer 58

A tax treaty provision aimed at preventing treaty shopping, which limits treaty benefits (eg reduced withholding tax) to those who meet specified criteria.

Question 59

Manufacturer’s sales tax

Answer 59

A single-stage sales tax that is collected at the manufacturing level of the production/ distribution process

Question 60

Marginal tax rate

Answer 60

The rate applicable to an additional increment of the tax base.

Question 61

Most favored nation clause

Answer 61

A provision often found in double tax treaties whereby, typically, one state promises to reduce the rate of withholding tax charged under the treaty if, in future, it concludes a new treaty with any other state under which it charges a lower rate of withholding tax.

Question 62

Multinational enterprise

Answer 62

Company or group of companies with business establishments in two or more countries.

Question 63

Neutrality

Answer 63

A principle which states that taxes should not affect the economic decisions of consumers or producers.

Question 64

OECD

Answer 64

The Organization for Economic Co- operation and Development is an organization 38 industrialized countries. It plays a central role in the field of international tax policy

Question 65

Opaque entity

Answer 65

An entity, such as a partnership which is viewed as a taxable person in its own right, independently of its members. The opposite would be ‘transparent’ where a state does not recognise the partnership for tax purposes
at all but only the individual partners are recognised as taxpayers.

Question 66

Partnership

Answer 66

An association of two or more persons. In some countries, partnerships are treated as separate entities for tax purposes, but in others they are not.

Question 67

Payroll tax

Answer 67

A tax on the payroll or sums paid to employees.

Question 68

Permanent establishment

Answer 68

This term is used in double tax agreements to determine whether a non-resident entity has sufficient presence in a jurisdiction to justify being taxed on the business profits that it earns in the jurisdiction.

Question 69

Personal taxes

Answer 69

This term includes all taxes paid by individuals, income, payroll, consumption and wealth taxes.

Question 70

Poll tax

Answer 70

A per capita tax, or a tax per head of population, normally a fixed amount and not in common use

Question 71

Portfolio investment

Answer 71

A holding of shares in a company that is a small proportion of the total shares, usually less than 10%.

Question 72

Progressive tax

Answer 72

A tax by which the ratio of tax paid to income is higher for high income individuals than for low income ones.
A progressive tax rate has a marginal rate which is always in excess of the average rate of tax.

Question 73

Property tax

Answer 73

A tax imposed on property ownership.

Question 74

Regressive tax

Answer 74

A tax by which the ratio of tax paid to income is lower for high income earners than for low income earners. The average rate
of tax falls as income rises. Consumption taxes are often viewed as regressive, as consumption is a larger share of income for the poor.

Question 75

Residence

Answer 75

This is a common basis for the imposition of taxes, sometimes, but not always, defined in tax legislation

Question 76

Royalties

Answer 76

Payments for the use of, or the right to use, intellectual property.

Question 77

Safe harbour

Answer 77

General guidelines for a range within which tax authorities will accept transactions without further question, used to reduce compliance and administration costs.

Question 78

Shell company

Answer 78

A company established to hide activities, usually associated with tax evasion.

Question 79

Subsidiary company

Answer 79

A company that is controlled by another company (parent).

Question 80

Tax expenditure

Answer 80

Special preferences that reduce the tax liability for particular activities, industries or type of taxpayer.

Question 81

Tax haven

Answer 81

A jurisdiction with low or no tax, used for international tax planning and tax evasion.

Question 82

Tax holiday

Answer 82

Period of exemption from tax offered as an incentive.

Question 83

Tax treaty

Answer 83

An agreement between two (bilateral) or more (multilateral) countries, also known as a Convention or an Agreement.

Question 84

Thin capitalization

Answer 84

Where the proportion of a company’s debt is
large in comparison with equity capital.

Question 85

Transfer pricing

Answer 85

The process of establishing a price for the transfer of goods, services or property between related companies.

Question 86

Treaty shopping

Answer 86

Use of favourable tax treaties in international tax planning.