TONG QUAN VE THUE QUOC TE

CHAP 1
INTRODUCTION TO
INTERNATIONAL TAXATION

LECTURER: Dang Thi Bach Van(MA)

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CONTENT
Essential concepts in international taxation
Tax planning in multinational enterprises
Tax administration
Role of supranational organizations
Cross-border enforcement of taxes
BEPS project

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Questions
Think about tax in the context of a single

jurisdiction  tax in a global context.
Is there any international “ tax system”?

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INTRODUCTION
 Increasing integration
 MNEs – cross border transactions >< international tax

issues
 Foreign investment  national goverments  tax revenue


CONCEPTS
International taxation refers to tax levied on the cross
border transactions. The transactions may take place

between two or more persons or entities in two or more
countries or tax jurisdictions.
 Such a transaction may involve a person in one country
with property and income flows in another


INTERNATIONAL TAXATION DEFINE
International tax refers to the international aspects of the

income tax laws of particular countries.
 Các nguyên tắc đánh thuế áp dụng cho những giao

dịch giữa hai hoặc nhiều quốc gia.
 Thuế luôn mang tính chất quốc gia, không mang tính quốc tế.
 Không có tòa án thuế quốc tế hoặc các cơ quan quản lý các

vấn đề riêng về thuế quốc tế.

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Questions
What determines the right of a country to

levy tax on a person or company?
What connection, if any, need there be
between taxpayer and the tax authority?
 Most countries use the principles of source
and residence

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Essential concepts

in international taxation
Home and Host Country
+ In Business Context:
Home Country refers to the country where
the headquarters is located.
Host Country refers to the foreign countries
where the company invests.

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Essential concepts
in international taxation
Tax jurisdiction: the extent of a country’s

right to tax
Two principles
are therefore in common
use around the world to determine the
extent of a country’s tax jurisdiction:
RESIDENCE & SOURCE

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Tax jurisdiction
Under

the resident jurisdiction: A
country may reserve the right to tax its
residents on their worldwide income and
gains.
Under the source jurisdiction: a country
reserves the right to tax not only the
worldwide income and gains of its tax
residents, but also the income and gains of
non-residents arising within its border.

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Tax jurisdiction
A country’s tax base may therefore be defined in terms of:
The persons who are liable to pay tax (eg individuals only,

individuals plus corporations, individuals plus trustees plus
corporations, etc).
The types of income and capital on which tax must be paid.

For instance, a typical tax base might include:
 Income taxes on earnings
 Income taxes on investment income
 Income/corporation taxes on profits of corporations
 Capital taxes on capital profits
 Capital taxes on inheritances
 Indirect taxes on purchases of goods and services
 Taxes on holdings of property and wealth
 Tax base can be eroded through tax planning, tax avoidance

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Federal systems and local-level
taxes
Some countries have multi-tier tax systems

where the federal government collects taxes
and the internal divisions of the country also
have their own tax systems.
Tax policy makers can learn much from the
operation of these sub-national tax systems.
Issues which the supra-national tax policy
makers grapple with, such as artificial shifting
of profits to low-level tax countries and which
country has the right to tax a particular

company have often been dealt with
successfully in state-level tax system.
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Federal systems and local-level
taxes
In our study of double tax relief we are not usually
concerned with sub-national taxes because:
Sub-national taxes are normally tax deductible when
computing tax at the federal (national) level, thus any
potential double taxation to which they give rise has
already been dealt with;
Double taxation treaties (mainly bilateral agreements
under which two countries decide how double taxation
arising from the interface of their tax systems is to be
relieved) normally exclude sub-national taxes from
their provisions. In any case, double tax treaties
normally only deal with the taxation of income, gains
and capital, not sales or other indirect taxes.
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Tax principles
in an international environment
How

should tax revenues be divided
between the various countries in which
taxpayers do business or otherwise earn
taxable profits?
 what gives it jurisdiction to tax, residence
of a taxpayer or the source of the taxable
income or profits, or both?

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Tax principles
in an international environment
A neutral tax is one which leaves a pre-tax

decision unchanged post tax, so that taxes
do not impinge on choices about savings
and investment

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Tax principles
in an international environment
National neutrality (NN)
Capital export neutrality (CEN)
Capital import neutrality (CIN)

(Peggy Musgrave, 1960s)

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Tax principles
in an international environment
National ownership neutrality (NON)
Capital ownership neutrality (CON)

(Desai and Hines, 2003)

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Tax principles
in an international environment
National neutrality is insular, in that it

focuses on ensuring that the domestic
fiscal does not lose when residents invest
overseas.
It is concerned with equalising the after-tax
rate of return on foreign investments with
the pre-tax return on domestic investments
by treating foreign taxes paid in the same
way as other business expenses.

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Tax principles
in an international environment
CEN is concerned with neutrality in the

location of investment.
Under this principle, a tax system should

be designed so that it is neutral regarding
outflows of capital, so that the total of
domestic and foreign taxes does not leave
a capital exporter worse off than if the
investment had all been in the home
country.

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Tax principles
in an international environment
CIN is concerned with neutrality in the

source of investment and from a
government’s point of view means that
domestic companies should be protected
from a higher tax burden in a foreign
market than taxpayers from other countries
operating in that same market (ie all firms
of all nations pay the same rate of tax)

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Tax principles
in an international environment
For CEN, it is the domestic tax rate that is

most important;
For CIN, it is the foreign tax rate.

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Tax principles
in an international environment
National

ownership
neutrality
(NON)
suggests that the amount of tax paid by a
business should not depend on the identity,
or location, of its owners. Therefore,
decisions such as how to structure foreign
investment (eg as foreign direct investment
or otherwise), should not be influenced by

tax considerations.

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Tax principles
in an international environment
Capital

ownership
neutrality
(CON)
suggests that tax systems should not
distort asset ownership on a worldwide
basis;
which
should
be
such
that
productivity is maximized.
NON and CON, in emphasising ownership
patterns, are based on a transaction cost
economics approach.
NON and CON highlight the distortion of
international ownership patterns leading to

inefficiencies.#
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Tax planning in multinational
enterprises (MNEs)
MNEs usually:
consist of groups of companies or other
business entities which are resident in a
number of different countries, but which
are under common control;
Consist of partnership and other business
forms where the partners are resident in
different countries;

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Tax planning in multinational
enterprises (MNEs)
MNEs usually:
Seek to exploit differences in the tax systems in

the various countries within which they operate
 minimise the global tax bill, maximise global
after-tax profits.
May also seek to exploit differences not only in
the tax rates but also in the way tax profits
are computed – for example, by claiming a tax
deduction in one country for an item of
expenditure which is being paid to a fellow group
member in another country, whose tax system
does not count the receipt as taxable income.
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