Abstract
This article analyzes the interaction between domestic tax legislation applied to avoid or combat a brain drain and the OECD and the UN model tax conventions, the two main models used by states in tax treaty negotiations. After it is demonstrated that brain drain taxes are incompatible with the current tax treaty network, the author presents alternatives that could be included in the model tax conventions, and consequently in tax treaties, to establish the compatibility of the measures, as well as a justification for the adoption of these alternatives in tax treaties involving developing countries.
Highlights
Since the migration of highly-skilled labor intensified after the Second World War, a discussion arose regarding the effects that such migration would have on the state of emigration
Article 7 of the United Nations (UN) Model Tax Convention is based on Article 7 of the Organization for Economic Cooperation and Development (OECD) Model Tax Convention, so it is not surprising that they adopt a similar position regarding the taxation of business profits, i.e. exclusive taxation in the residence state, save if there is a permanent establishment in the source state and the income was earned through a permanent establishment
ESTABLISHING THE COMPATIBILITY OF BRAIN DRAIN TAXES WITH DOUBLE TAX TREATIES. As it has been presented in this paper, the adoption of a brain drain tax presents a challenge to states that have signed double tax treaties, as such a tax cannot be applied in a treaty setting save in specific situations: (i) residence-residence conflict solved in favor of the emigration state, or (ii) unresolved residence-residence conflict
Summary
Since the migration of highly-skilled labor intensified after the Second World War, a discussion arose regarding the effects that such migration would have on the state of emigration. Instead of focusing on whether countries should adopt tax measures to avoid brain drain or on analyzing measures that have already been adopted by specific states and their possible effects, this article will consider a scenario in which states have made the decision in their domestic legislation to either establish barriers for emigration, such as the imposition of a tax on future earnings, or to provide a beneficial tax treatment for individuals who decide to remain in their home states From this starting point, the author will analyze whether these rules are in line with the current international framework of double tax conventions. After the (in)compatibility of the measures has been assessed, the author will look at the possible amendments that could be made to model tax conventions so that states that wish to enforce their domestic rules on curbing the brain drain are not restricted by international tax treaties
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