Chapter Three International Double Taxation

1. Chapter Three International Double Taxation

2. Outline C3-1 Defining International Double Taxation C3-2 Causes of IDT C3-3 The impact of IDT C3-4 Basic ways of IDT Relief C3-5 Rules to constrain Tax Jurisdiction

3. C3-1 Defining IDT • Since the overlapped taxation is often in double taxation form, so we use double taxation to describe overlapped taxation. • The same or different subjects of taxing power, levy twice or more on the same taxpayer or taxable objects.

4. C3-1 Defining IDT

5. C3-2 Causes of IDT

6. C3-3 The impact of IDT • IDT hiders global economic development. - has some negative effects on the individual’s or legal entities’ enthusiasm of cross-border investment and cooperation. • Hinder the goods, service, talents, technology and capital to move freely around the world. • IDT cause contradictions or interest conflicts among different countries.

7. C3-4 Basic ways of IDT relief

8. C3-4 Basic ways of IDT relief

9. C3-4 Basic ways of IDT relief • Residence country takes methods of deduction\exemption\credit to its resident foreign income. Source country gives up its source TJ . • Two countries sign treaties to define the income source, the resident status, also the methods to relieve IDT according to OECD Model Convention and UN Model Convention.

10. C3-5 Rules to constrain Tax Jurisdiction

11. C3-5-1 Rules to constrain residence tax jurisdiction • Rules to solve individual’s dual-resident status • If an individual is a resident of both states, his status shall be deemed as follows: 1. Permanent home 2. Centre of vital interest 3. Habitual adobe 4. Nationality 5. Mutual agreement

12. C3-5-1 Rules to constrain residence tax jurisdiction • Rules to solve dual-resident status of a legal entity • If a legal entity is a resident of both States, it shall be deemed to a resident only of the State in which its place of effective management is situated. • Mutual agreement

14. PE includes especially: • A place of management • A branch • An office • A factory • A workshop • A mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

15. PE shall be deemed not to include a) The use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise b) The maintenance of a stock of goods or merchandise belong to the enterprise solely for the purpose of storage, display or delivery. Not in UN model

16. c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise

17. e) The maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character. f) The maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of preparatory or auxiliary character.

18. UN Model Convention The furnishing services, including consultancy services，by an enterprise through employees or other personnel by the enterprise for such purpose，but only if activities of that nature continue （for the same or connected project）within a contracting state for a period or periods aggregating more six months within any twelve-month period.

20. Transnational income derived from independent personal services (Article 14) OECD Rules: Fixed base criterion • If a resident has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State.

21. UN Rules + Criterion of Income payment If his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned; in that case only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

22. Income from employment or Dependent personal income (Article 15) • Remuneration derived by a resident of a Contracting State in the respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned state if:

23. The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and • The remuneration is paid by, or on behalf of, an employer who is not a resident of the other state, and • The remuneration is not borne by a PE which the employer has in the other state

24. Other income • Director’s fee Director’s fee and other similar payments derived by a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

25. Artistes and Sportsmen’s income (Article 17) 1. Income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

26. 2. Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.

28. OECD & UN Model (Article 10,11,12) The principle of Tax sharing The Contracting State and the other Contracting State can both tax on dividend, interest and royalties.

29. dividend OECD Model • The tax so charged shall not exceed 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends

30. dividend • OECD Model • 15% of the gross amount of the dividends in all other cases

31. Interest • OECD Model • Shall not exceed 10% of the gross amount of the interest. • UN Model • ….. Percent • Established through bilateral negotiations

32. Royalties • Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State. • OECD Model • .

33. UN Model • Such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed …. Percent of the gross amount of the royalties. • .

35. Income form immovable property (Article 6) Income derived by a resident of a Contracting State from immoveable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State

36. Capital Gains (Article 13) • Gains derived • from the alienation of immovable property • from the alienation of movable property forming part of the business of property of a PE • from the alienation of ships or aircrafts or boats • from the alienation of shares percentage limitation may be taxed in that other State.