Principles of international tax law

Question 1

What is the cornerstone principle of income tax law

Answer 1

The ability to pay principle

Question 2

What is the benefit principle in the tax system

Answer 2

The idea that a person should only pay to the extent that they benefit from the goods and services provided by the state

Question 3

The benefit principle has been of great importance when designing the income tax system

Answer 3

No, it is mostly influential in tolls and such

Question 4

The benefit principle is the reason why nations may claim taxes from foreign residents

Answer 4

True

Question 5

What is the principle of neutrality in taxation

Answer 5

That taxes should not effect the choice of activity as this might create a welfare loss if f.ex supply and demand become distorted

Question 6

What is the principle of equity in taxation

Answer 6

That taxation should be fair, f.ex people of the same income should pay an equal ammount while those with a greater income should pay more

Question 7

Why has there not been any purely transnational coordination attempts of income tax systems and what is the result

Answer 7

The reason is becouse taxation is closely tied to soverignty so the problem of overlapping tax jristictions have been delt with on a bilateral basis or in the domestic tax code. The result of the fragmented tax system is that some income falls outside all tax systems

Question 8

The connection of the person or income to a juristiction are the basis of tax competence

Answer 8

True

Question 9

What is the residence principle in tax law

Answer 9

That if the tax liability is connected to the person then the total income is subject to tax in the residence state irrespective of where the income source is located

Question 10

What is the source principle in tax law

Answer 10

That if the tax liability is connected to a specific income the state is only entitled to tax the income whith its source in the state

Question 11

What is the principle of capital export neutrality CEN

Answer 11

That taxation should not effect if to invest at home ore abroad

Question 12

What is the princople of capital import neutrality CIN

Answer 12

That businesses should not be taxed differently based on where their investments come from

Question 13

What is the principle of unlimited tax liability

Answer 13

That a person should be taxed on all income no matter its source

Question 14

Explain the concept of habitual abode

Answer 14

That a person who is present in a territory for a certain amount of time (usually 6 months) are considered residents and are thus subject to the residence principle to be taxed on all their income

Question 15

Give some other reason a state might consider a person a resident outside their habitual abode

Answer 15

Connection to the state, income source or nationality

Question 16

What is the territoriality principle

Answer 16

A sometimes used practice to instead of looking at the location or connection of a person to insted look at if their income is largely tied to the state and use that as an argument for residence.

Question 17

What are the two main connection factors that create unlimited tax liability for corporations

Answer 17

The place of incorporation and the palace of management

Question 18

Where is a company incorporated

Answer 18

In the location where it is recognized as a legal person

Question 19

Where is a companies palace of management

Answer 19

Where the day to day decisions are made or where the board of directors meet if the first cannot be decided

Question 20

limited tax liability contridicts the ability to pay principle

Answer 20

True, as it does not make it possible to take into account a persons total income

Question 21

Very generally passive income f.ex dividends and royalties is subject to source taxation in the state where the income is generated

Answer 21

True

Question 22

What is a business branch and can it be taxed at source

Answer 22

It is a permanent establishment in a state and yes it it taxable even if the main headquarters are not in the state or the company is not registered there

Question 23

Wages are not taxable in the country they are payed if the company is foreign

Answer 23

False

Question 24

Active income is taxed on a net basis so deductions for expenses are allowed

Answer 24

True

Question 25

What is international double taxation

Answer 25

When one country makes a person fully liable while they have a öimited liability to another leading to overlappig tax claims. Other cases include of one taxes based on residency while the other nationality or if both claim a tax for diferent aspects for a limited liability for an action f.ex if a branch is taxed and then the shareholders for the dividends

Question 26

Double taxation goes against the neutrality and ability to pay principles

Answer 26

True

Question 27

What are the three main methods to mitigate double taxation used in domestic law

Answer 27

The exception method, foreign credit method and the deduction method.

Question 28

What is the excemption method to mitigate double taxation

Answer 28

To not tax income made abroad even if they are fully resident in accordance with the princiiple of territoriality (full excemtion). Income may come into account to put the resident in a similar situation as if the income was earned in the nation (excemtion with progress).

Question 29

What is the foreign tax credit method to mitigate double taxation

Answer 29

To reduce the amount to be taxed (give a tax credit) by the amount payed to foreign sources.

Question 30

What is an ordinary credit limitation in the foreign tax credit method

Answer 30

To limit the deducable amount to that which would be allocated if the deed was done domestically.

Question 31

Ordinary credit limitations is done verry rarely

Answer 31

False, (full credit aka no limit is verry rare)

Question 32

what is direct and indirect foreign tax credit

Answer 32

When foreign tax credit is given for taxes payed by the same person or not in the case of indirect f.ex when a parrent company is given credit for taxes payed by its subsidiaries

Question 33

What is the deduction method of limiting double taxation

Answer 33

To include the foreign income in the total income and then deducing the foreign taxes as a cost of foreign business

Question 34

The deduction method cannot fully relive double taxasion

Answer 34

true

Question 35

It is easyer to obtain a deduction than a tax credit for losses

Answer 35

True

Question 36

In the case of extreme high foreign taxes a deduction is worse than a tax credit

Answer 36

False

Question 37

How does the result of the excemtion method and the foreign credit method differ

Answer 37

excemption leads to the global tax rate being the foreign one (progressively adjusted) while the tax credit leads to it being that of the native country (although this can be exceeded as ordinary credit limitation provides a cap on credit) So when the foreign tax is higher the global tax becomes that of foreign in the foreign credit method too

Question 38

The excemption method enhances the CIN principle whiel the credit method enhances the CEN principle if foreign tax is lower

Answer 38

True