Principles of international tax law Flashcards
What is the cornerstone principle of income tax law
The ability to pay principle
What is the benefit principle in the tax system
The idea that a person should only pay to the extent that they benefit from the goods and services provided by the state
The benefit principle has been of great importance when designing the income tax system
No, it is mostly influential in tolls and such
The benefit principle is the reason why nations may claim taxes from foreign residents
True
What is the principle of neutrality in taxation
That taxes should not effect the choice of activity as this might create a welfare loss if f.ex supply and demand become distorted
What is the principle of equity in taxation
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
Why has there not been any purely transnational coordination attempts of income tax systems and what is the result
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
The connection of the person or income to a juristiction are the basis of tax competence
True
What is the residence principle in tax law
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
What is the source principle in tax law
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
What is the principle of capital export neutrality CEN
That taxation should not effect if to invest at home ore abroad
What is the princople of capital import neutrality CIN
That businesses should not be taxed differently based on where their investments come from
What is the principle of unlimited tax liability
That a person should be taxed on all income no matter its source
Explain the concept of habitual abode
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
Give some other reason a state might consider a person a resident outside their habitual abode
Connection to the state, income source or nationality
What is the territoriality principle
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.
What are the two main connection factors that create unlimited tax liability for corporations
The place of incorporation and the palace of management
Where is a company incorporated
In the location where it is recognized as a legal person
Where is a companies palace of management
Where the day to day decisions are made or where the board of directors meet if the first cannot be decided
limited tax liability contridicts the ability to pay principle
True, as it does not make it possible to take into account a persons total income
Very generally passive income f.ex dividends and royalties is subject to source taxation in the state where the income is generated
True
What is a business branch and can it be taxed at source
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
Wages are not taxable in the country they are payed if the company is foreign
False
Active income is taxed on a net basis so deductions for expenses are allowed
True
What is international double taxation
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
Double taxation goes against the neutrality and ability to pay principles
True
What are the three main methods to mitigate double taxation used in domestic law
The exception method, foreign credit method and the deduction method.
What is the excemption method to mitigate double taxation
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).
What is the foreign tax credit method to mitigate double taxation
To reduce the amount to be taxed (give a tax credit) by the amount payed to foreign sources.
What is an ordinary credit limitation in the foreign tax credit method
To limit the deducable amount to that which would be allocated if the deed was done domestically.
Ordinary credit limitations is done verry rarely
False, (full credit aka no limit is verry rare)
what is direct and indirect foreign tax credit
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
What is the deduction method of limiting double taxation
To include the foreign income in the total income and then deducing the foreign taxes as a cost of foreign business
The deduction method cannot fully relive double taxasion
true
It is easyer to obtain a deduction than a tax credit for losses
True
In the case of extreme high foreign taxes a deduction is worse than a tax credit
False
How does the result of the excemtion method and the foreign credit method differ
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
The excemption method enhances the CIN principle whiel the credit method enhances the CEN principle if foreign tax is lower
True
