System of sources and principles of international tax law

Abstract

In international cooperation on taxation, countries strive to achieve equality in international taxation and, thus, create the basis for a fair international tax system. Justice exists in an international system of taxation only when states allocate taxing powers among themselves in a manner consistent with dominant views of justice internationally. A fair international tax system will not exist until there is some international consensus on how countries should allocate taxing powers among themselves. International cooperation allows countries to improve the coordination of tax policy at the international level. We can talk about several types of coordination. For example, one type aims to make a country’s tax system more similar to others - in other words, to harmonize taxes. Other types aim to establish minimum or maximum tax rates to avoid double taxation of cross-border income streams, prevent transfer pricing, coordinate arrangements with competent authorities and limit harmful tax competition. The current official agreements mean business activities through a permanent establishment and give the source country the primary right to tax profits from this operation. The country of residence is obliged to exempt these profits from tax, at least to the extent that they were taxed by the country of source. A tax treaty also often provides for an exemption from taxation of the employee’s income from personal services provided the employee is in the country for no more than a specified period of time and the compensation is received by a non-resident employer without a permanent establishment. The treaty usually reduces or eliminates withholding tax on at least some items of investment-type income, such as interest, dividends, rents and royalties, that are not attributable to business carried on through a permanent establishment. The tax treaty also provides that the country of residence can tax capital gains.