Tax Agreements Research Articles

Preventing Tax Base Erosion from Tax Treaty Abuse For SDGS in Vietnam

Objective: Tax treaties represent an important aspect of the international tax rules of many countries, especially in globalizing era. The taxing rights of the states is one of the biggest issues in cross border transactions because it decides the budget revenue deriving from tax. Tax base, tax base erosion and tax base erosion prevention are topics that have received a lot of attention recently in Vietnam in order to protect government’s revenue for sustainable development goals (SDGs). Method: By analyzing the current status of Vietnam's double taxation agreements (DTAs), the authors assessed the current situation and identifying risks of tax base erosion from abusing Vietnam's DTAs. The study focuses on analyzing the indicators to assess the content of DTAs such as the Source Index (SI), Permanent Establishment Index (PEI) and Withholding Tax Index (WHT) of Vietnam’s DTAs with the ones of groups of countries. Results: The authors found that there are loopholes in DTAs creating conditions for abuses of the terms of the agreements and causing tax base erosion in Vietnam. Comparing to the average level of developing countries, the DTA system of Vietnam is higher, however, the biggest limitation and the biggest risk from the system of DTAs are these agreements are agreements signed by Vietnam with the countries/territories that have the lowest scores and are in the group of countries/territories with the largest amount of investment capital in Vietnam. Contribution: The study makes some recommendations for Vietnam to prevent tax base erosion from tax treaty abuse by reviewing and considering negotiating to update the content of the bilateral tax agreements, promoting participation in multilateral tax agreement and improving efficiency of tax audit.

Juridical Analysis of Relationship Between Beneficial Owner Concept & Implementation of Double Taxation Avoidance Agreement (Case Study of Decision Number 736/B/PK/PJK/2013)

The concept of beneficial ownership emerged in the 1977 OECD Model to address tax issues, specifically to identify the true recipients of passive income such as dividends, interest, and royalties for tax deduction purposes. This concept distinguishes between legal owners and those who actually control and benefit from income. Globalization has increased cross-border transactions, creating both positive impacts, like increased tax revenue, and negative impacts, such as tax avoidance and international double taxation. Double Taxation Avoidance Agreements (DTAA) aim to mitigate these issues by delineating tax responsibilities between countries. In Indonesia, the beneficial owner concept was incorporated into tax regulations to prevent treaty abuse and ensure appropriate tax benefits. This study analyzes Judicial Review Decision Number 736/B/PK/PJK/2013, focusing on the case of PT Indosat Tbk and Indosat Finance BV (IFC BV) regarding the determination of beneficial ownership for tax purposes. The findings indicate that IFC BV met the beneficial owner criteria, thus entitled to DTAA benefits, exempting it from Indonesia's Income Tax Article 26 withholding. The case underscores the importance of clear beneficial ownership determination in international tax agreements to prevent abuse and ensure fair taxation.

The role of anti-tax avoidance in tax base flow and international tax competition

By constructing the profit shifting model for MNCs, this study uses transfer pricing rules and bilateral tax conventions to examine the impact of anti-avoidance system on a country's corporate income tax base. Based on the balanced panel data of 50 countries from 2000 to 2013, we use the SYS-GMM method and find that the transfer pricing rules of neighboring countries significantly reduces the tax base of a country, while the impact of bilateral tax agreements on a country's tax base is slight. During the sample period, the management level of international anti-avoidance is improved, while the degree of tax competition among countries becomes more intense. Moreover, we show that anti-avoidance measures can reduce the phenomenon of tax avoidance for intangible assets.

The Puzzle: China’s Covered Tax Agreements Seem Unchanged after the MLI from Taxpayers’ Perspective?

This article uses the rule-standard spectrum theory to analyse the puzzle of why taxpayers may have the impression that China’s covered tax agreements (CTAs) seem unchanged after theMultilateral Instrument (MLI) despite the country having devoted enormous efforts to implementing it. This study finds that most of the changes in China’s CTAs through the MLI are standard-based provisions while it is willing to unilaterally and bilaterally embrace certain rule-based MLI provisions. The characteristics of China’s model in adopting the MLI, the possible reasons behind the model, and the implications for taxpayers are further explored. MLI, China’s CTAs, standard-based changes, rule-based changes, administrative-led legislative model, multi-dimensional tax policies, compliance cost, certainty and uncertainty, cooperation

The Tax Cooperation Mechanism between China and African Countries and the Avoidance of a Double Taxation Agreement

The tax cooperation mechanism between China and African countries has a bearing on the business environment of bilateral economic and trade cooperation. At present, the tax cooperation mechanism between China and African countries has developed rapidly by way of the Forum on China-Africa Cooperation (FOCAC) and the Belt and Road Initiative (B&R), but it still faces challenges, such as an insufficiency in tax agreements, differences on the agreement content, a lack of trans-regional tax cooperation agreements and support mechanisms to promote tax cooperation and exchange. To improve the China-Africa international business environment, it is necessary to enhance the tax cooperation mechanism between China and African countries, including the speeding up and signing of tax treaties, coordinating and improving the content of the agreements, negotiating a convention of trans-regional tax cooperation, setting up a tax supporting cooperation dialogue mechanism, strengthening the construction of tax capacity and improving the tax dispute settlement mechanism.

Международное налогообложение в начале XXI века: новая реальность

The article analyses the main changes in international taxation at the beginning of the XXI century. The author highlights the changes in the system of tax international information exchange for individuals and the BEPS project for multinational companies. These changes were caused by the consequences of the 2008 crisis. A system of tax information exchange in digital form based on international tax agreements was built for individuals. To combat corporate international tax evasion, the G-20 and OECD presented a BEPS Action Plan consisting of 15 actions. This Plan is designed to prevent the chaos in international taxation as a result of uncoordinated tax actions of individual states. The main elements of the BEPS Action Plan are traditional anti-avoidance measures without fundamentally changing international tax rules based on taxation of individual companies belonging to multinational corporations. The BEPS Plan contains a new form of reporting, which is based on the assessment of a multinational company as a whole. In the future, the tax attitude towards a multinational company as a single business was developed in the BEPS 2.0 project. The author believes that it is necessary to develop the rules of taxation of multinational companies as a single unit to solve current problems with taxation of such companies.

Overriding the rules of international tax treaties by the means of the national law of one of the parties (“Tax treaty override”)

Subject of research. The article is dedicated to the “tax treaty override”; it outlines debatable aspects, associated herewith. “Tax treaty override” is an action (in certain cases - omission of action) to expand taxation beyond (jurisdictional boundaries), defined in double taxation agreements which is implemented mainly through the intentional alteration of national legis-lation. The correlation between national and international legal norms has major impact upon the agreements on double taxation of income taking into account that many states including Russia are participants to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting 2016, which modifies rules of the men-tioned agreements and therefore begets a large number of possible collisions.Goal of the article. The goal of the article is to demonstrate that even if constitutional pro-visions don’t prevent the adoption of legislation on taxes and charges in contradiction with international obligations – that doesn’t imply that the latter lack legal significance. The goal also includes revealing specific features of double taxation agreements one of which is deep integration with domestic tax legislation that doesn’t stand still, but is evolving constantly. Methods of research. The preparation phase included the following research methods: formallogical analysis, system-based analysis, description, juxtaposition, synthesis and summarizing.Basic outcomes. The author draws a conclusion that the alteration (expansion) of tax jurisdiction which impacts i.a. the contents of tax residents’ rights of one or both treaty countries (party countries, treaty states) is actually the essence of tax treaty override. The main objectives of regulatory impact are jurisdictional capabilities (distributive rules) of states and tax reliefs for residents (individuals for the tax agreements). The phenomenon under consideration represents an artificially generated collision between the provisions of tax treaties and more recent norms of domestic legislation of one of the countries subject to a tax agreement, while the mentioned issue should be resolved in favor of domestic regulations. The main goals of regulatory impact include: jurisdictional capabilities of states (dis-tributive rules) and tax reliefs or benefits for residents (individuals for the tax agreements). Tax treaty override emerges when a provision of a law prevails and cannot be overridden by the means of tax agreements, including the test of correspondence between a national legal definition and the agreement context. At the same time legal changes that have prevailing power may correspond with international law (reasonable protection of national tax base) since the treaty states seek to eliminate double taxation without creating possibility of taxation freedom or reduction of taxation through tax avoidance and tax evasion.

Research on the Identification of "Beneficial Owner" in Tax Treaties: Based on Case Analysis

Nowadays, with the development of cross-border trade and the increase of tax agreements signed between countries, money laundering and tax treaty abuse crime is more and more rampant. The beneficial ownership rule first introduced in the last century by the OECD is an effective way to curb it. Based on introducing the origin and development of beneficial ownership rules, this paper analyzes the differences in international identification standards, then adopts the case analysis method to discuss the differences in the identification standards of beneficial ownership in tax treaties, and finally puts forward suggestions for the construction of a rational identification standard for beneficial ownership.

Improving the legislation of Ukraine to avoid and eliminate double taxation

The author carried out a comprehensive analysis of the theoretical and methodological foundations, normative foundations of improving the legislation of Ukraine to avoid and eliminate double taxation. The formation of the principles of overcoming double taxation through the implementation of the provisions of the current tax legislation is connected with the influence on the behavior of the relevant persons – both powerful and obliged. The impact on tax relations by the norms of tax legislation is carried out by detailing the capabilities and forms of behavior of bodies representing the state and guaranteeing the implementation of its interests in the payment of taxes and fees. This happens by granting the right to such bodies to issue preliminary clarifications on the grounds for carrying out one or another tax transaction, applying fines to taxpayers in case they do not comply with the relevant recommendations. In order to improve the procedures of the double taxation avoidance mechanism in Ukraine, it is proposed to establish the procedure according to which residents of Ukraine are obliged to declare income received abroad, and to impose on fiscal authorities the obligation to check the compliance of the declared data. For the introduction of such a procedure, we offer the norms of Article 13.5. 13 of the Tax Code of Ukraine shall be amended as follows: «13.5. Residents of Ukraine are required to declare income received abroad by submitting an appropriate application to the tax authorities. Otherwise, the specified entities will be held liable for the unreliability of the information provided in the declarations in accordance with the current legislation of Ukraine. The authorities of the State Tax Service of Ukraine conduct a check of compliance of the information provided by the taxpayer with specific factual data and a certain international agreement, as well as the fact that the relevant tax amounts have been credited to the budget.» In order to eliminate double taxation, the rules on the basis of which the profit of a permanent establishment or an enterprise that carries out trade with a foreign participant of the same group of enterprises should be additionally applied to the definition of a permanent establishment. On the basis of a comprehensive analysis of the theoretical and legal foundations, normative foundations of improving the legislation of Ukraine to avoid and eliminate double taxation, problems of imperfection of regulatory acts were identified and possible options for improving the legislation in the specified area were emphasized. Key words: avoidance of double taxation, elimination of double taxation, tax exemption, tax credit, tax agreements, income taxation, double taxation.

A cultural levy or a digital streaming service tax: New film industry levies conflicting with the EU member states’s bilateral tax treaty obligations and OECD digital tax agreements?

This note highlights the obstacles that the film levy, as a form of financial contributions on video on demand (VoD) service providers under Article 13(2) of the 2018 EU Audiovisual Media Service Directive, may face in a cross-border context from an international tax perspective. In particular, the first obstacle is that the double tax treaties of member states exclude the possibility to levy income taxes on a foreign VoD service provider if it has no fixed and permanent presence, for example, an office, in the country. Second, the new global tax agreement on addressing the tax challenges of digitalization demands its parties (137 countries) to remove all unilateral domestic taxes on all digital services and all companies.

Tax policy in the context strengthening the national security of Ukraine

In the article, the authors substantiated the need to reform and improve the efficiency of tax policy to ensure national financial and economic security. It has been determined that the main problems of tax policy, taking into account the introduction of martial law, hinder the development of entrepreneurial activity, lead to a decrease in production, a decrease in investment in the national economy, a reduction in incomes of the population, an increase in defense spending and state debt due to dependence on foreign aid and loans, which in general, it can lead to a decrease in the country's defense capability and security, in particular, its financial sovereignty. The importance of adopting the law of Ukraine "On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine on the implementation of the international standard for automatic exchange of information on financial accounts", part of the implementation of the BEPS plan (measures to counteract the erosion of the taxable base and the removal of profits from taxation), developed by organization of the OECD and aimed at ensuring that the competent authorities have access to this information in order to effectively identify undeclared income of tax residents outside the countries and control the correctness of declaring income and paying taxes, which in turn will contribute to the proper fulfillment by our state of international obligations on the exchange of information. for tax purposes provided for by the current double taxation conventions, the Convention on Mutual Administrative Assistance in Tax Matters, the CRS Multilateral Agreement and the implementation of the best international policies and practices in this area. The authors of the article also consider the importance of international cooperation to improve the efficiency of tax policy, in particular, in the area of concluding tax agreements and openness of tax registries. Gaining access to tax registries contributes to the fight against the shadow economy and crime, as it will allow you to control financial transactions and identify undeclared income. In particular, the conclusion of tax agreements between countries can reduce double taxation and stimulate the investment climate.
 It is revealed that undeclared economic activity, which is one of the forms of the shadow economy, and the lack of effective control over compliance with tax laws, leads to an increase in tax losses, which in turn affects the financial stability of the state. The importance of developing and implementing an effective tax administration system in the context of the National Revenue Strategy (which is one of the “structural beacons” declared in the Memorandum on Economic and Financial Policy with the IMF, which will avoid tax evasion, reduce the risks of financial instability and ensure stable growth in revenues) is noted. to the state budget It is noted that the successful implementation of the tax policy reform requires responsibility on the part of state bodies, society and business for the process of forming a tax culture, which will help raise the level of consciousness of citizens about the need to pay taxes and their importance for the development of the state.

Foreign direct investment, legal uncertainty and corporate income taxation

This paper asks whether legal uncertainty surrounding corporate income taxation can defer foreign direct investment (FDI) in developing economies. Legal risk or uncertainty can take many forms. We will focus on uncertainty circling around double tax agreements, differences in the type of legal systems and corruption. We test the effect of legal uncertainty on foreign direct investment both directly or indirectly thru taxation in an extended gravity model. Our unit of observation are country pairs (FDI sender and FDI receiver). We find that an increase in the ratio of the statutory corporate income tax rate of the destination relative to the source country exhibits a negative impact on foreign direct investment. Interacting the statutory corporate income tax rate with measures of legal uncertainty, we observe a negative effect. This implies that legal uncertainty detracts foreign direct investment, and the more so the higher are corporate tax rates.

Налоговое стимулирование инвестиций в зеленые технологии: опыт отдельных стран

The relevance of the research topic is due to the need to solve the problems of fiscal support for investment in the context of increasing environmental and climate risks that push countries to form the fiscal policy under the influence of the climate agenda, capable of ensuring the financial interests of governments and investors. The main objective of the article is to characterize the processes of transformation of national fiscal policy under the influence of the global climate agenda and tax incentives for investments in green technologies. The authors analyze the sources of investment financing mobilized by developed countries, the main of which are carbon taxes and energy taxes. Changes in the tax policy of the Russian Federation aimed at stimulating the best available technologies and R&D are exposed. The following conclusions are made. Developed countries are actively implementing fiscal measures to support investment in green technologies; the topic of tax transformation has moved from a discussion format to the plane of practical application, although not always successful. Today countries introduce new incentives, use preferential environmental taxation of innovative activities of the energy-intensive sector and voluntary tax agreements of authorities with investment companies, form ratings based on unified comparable indicators. The Russian Federation lags behind developed countries in mobilizing financial resources for green economic growth and in the development of fiscal tools that have proven effective. The problem today is tax regulation of technological development, which covers investment incentives and disincentives to environmental pollution. The next promising action could be the formation of a financial basis for green economic growth, investment in green technology.

MEĐUNARODNOPRAVNI ASPEKTI MULTILATERALNOG POREZNOG INSTRUMENTA

The Multilateral (tax) Instrument (MLI) represents an exceptionally interesting international legal act that brings many novelties that will leave an impact both in the international tax regime and in international law in general and as such deserves our attention. Designed as a multilateral international legal act, the MLI aims to make changes within the network of about two thousand bilateral tax agreements, so that in a harmonized, unified and organized way, the latest recommendations of actions implemented under the auspices of the Organization for Economic Cooperation and Development are incorporated. (OECD), with the aim of combating the phenomenon of “base erosion and profit shifting” (BEPS) to jurisdictions with a low or non-existent tax (so-called “tax havens”). The MLI contains elements of modularity, giving Contracting Parties a wide range of options, but maintains consistency by insisting on the immutability of provisions aimed at achieving minimum standards. With such features, it can certainly represent a model for future multilateral agreements and, with its example, influence the further development of international law, which is the primary aspect of the interest of this paper.

Relations Between European Law and Taxation in Bulgaria

The Republic of Bulgaria joined the European Union (EU) in 2007. The aim of this article is to review the impact of European law on the Bulgarian tax system. As the topic is very broad, the study focuses on the Constitution on the one hand and certain tax statutes on the other. Attention is also paid to the latest challenges in the field of international taxation. First, the subject of the study is the amendments made to the constitutional provisions related to tax matters. In discussing them, it is necessary to use a broader concept of European law, since the European Charter of Local Self-Government was adopted by the Council of Europe. Articles 9 (1), 9 (2) and 9 (3) of the Charter set out important principles of self-government that influence the decision-making process on what amendments to undertake to the Constitution. Second, for the purposes of this article, the recent changes in the area of indirect taxation are taken into account, as indirect taxes have been harmonized with the VAT Directive transposed into the Bulgarian Value Added Tax Act (VATA). EU legislation also governs excise duties, which are levied on alcoholic beverages, tobacco and energy products. The provisions of Directive 2008/118/EC on the general arrangements for excise duty have been transposed into the Bulgarian Excise Duties and Tax Warehouses Act (EDWA). However, excise duties need a separate in-depth study. For this reason, they remain outside the scope of this article. Third, changes have been made in the area of direct taxation. A key objective of the EU is the creation of a common market, which implies the removal of obstacles to the free movement of goods, persons, services and capital between Member States. The Treaty on the Functioning of the European Union (TFEU) therefore contains provisions empowering the Union to introduce directives in the field of direct taxation. Nevertheless, as bilateral tax agreements also apply in the same area, the article sheds light on the conflicts between them and EU directives, as they are sometimes based on different legal principles.

Lost in Information: National Implementation of Global Tax Agreements

Lost in Information: National Implementation of Global Tax Agreements

Digital Services Taxation in the Context of International Tax Agreements

The paper discusses the concepts of digital services taxation proposed by the Organization for Economic Cooperation and Development (OECD) and the United Nations. The paper analyzes similarities and differences between the concepts under consideration. It is noted that the purpose of the measures proposed by the OECD and the UN to solve tax problems of the digital economy is to determine the taxable connection (revision of the concept of permanent representation and assessment of whether data collection and monetization lead to value creation for transfer price setting). According to the results of the study, it is concluded that the main problem in finding the optimal solution for the taxation of income from digital services is the inconsistency of the actions of the international community. The OECD’s two-component approach focuses on new rules for profit sharing. The UN approach is aimed at simplifying administration, which makes it possible to implement it more widely, especially in developing countries. In addition, the paper proposes the prospects for the development of tax regulation in Russia in the context of new international regulation.

Article: What’s in a Name?: The Classification of ‘Interest’ on Crypto-assets in South Africa and Beyond

Decentralized finance (DeFi) represents a specific application of crypto-asset technology that has made significant advancements in adoption. While academic tax literature has focused on basic crypto-asset transactions, the tax consequences of DeFi transactions have been much less frequently explored. This study considers whether income or expenditure arising in specific DeFi transactions might be classified as interest in terms of South African income tax legislation as well as within the international tax context. Classification as interest has significant implications. Within South African domestic legislation, it impacts the determination of source, quantification of amounts, timing of recognition, application of exemptions, and imposition of withholding tax. Internationally, it has implications for the determination of jurisdictional taxing rights under double tax agreements. This study proposes that, while historically, interest may have been thought of exclusively as arising in the context of monetary debt, this is not a definitive characteristic of interest. Rather, interest represents remuneration for the provision of capital in the form of a loan principal with a contractual right to repayment. Whether each of these elements is present in the cases of the identified DeFi transactions is inconclusive. The study therefore recommends the provision of guidance to taxpayers by South Africa and other jurisdictions, and supports a coordinated approach among jurisdictions in the determination of income tax outcomes.

Article: The Effect of Article 6 MLI on Covered Tax Agreements: Fata Morgana or New Reality?

Article 6 of the multilateral instrument (MLI) provides all bilateral covered tax agreements (CTAs) with preamble language expressing that it is the purpose of tax treaties to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements). This contribution explores the effect this new preamble language will (realistically) have on the interpretation and application of CTAs. The author begins by discussing the current function of preambles for (tax) treaties, including in decisions of tax courts, then analyses the interaction between Article 6 MLI and CTAs, after which an interpretation is provided of Article 6 MLI itself and the terms used therein. Lastly, several objections against attributing the new preamble much effect in practice are discussed as well as the relationship between Article 6 MLI and the principal purpose test. The author comes to the conclusion that the preamble language of Article 6 MLI deserves a different status than the preambles that typically preceded it. Parties to the MLI will need to heed the working of Article 6 MLI for future questions of interpretation and application of tax treaties and should use caution in order to not dismiss the preamble as either irrelevant or superfluous too quickly. MLI, preamble, CTA, BEPS, abuse, non-taxation, avoidance, interpretation, purpose, treaty

The acts of the EU tax law and double tax treaties: the problems of correlation in establishing anti-tax avoidance rules

The subject. The specifics of the functioning of tax systems and the risk of double taxation require a solution to the issue of whether tax competence can remain only at the national level. Modern cross-border tax relations operate within a multi-level system of legal regulation based on the norms of international, supranational and national lawThe difficulties of correlating these levels are rooted in the fact that, in accordance with international law, each State has the right to tax persons or transactions with which it has a sufficient connection. Different situations may occur when both countries believe that the taxpayer is their resident, or when each of them claims that the income was received in this state. States solve this problem both unilaterally with the help of national legislation, and on a bilateral basis with the help of a double tax treaty.With the adoption of the Action Plan aimed at combating the erosion of the tax base and the withdrawal of profits (hereinafter referred to as the BEPS plan) and the EU Council Directive 2016/1164 (ATAD), tax strategies for using gaps and inconsistencies in tax rules to artificially transfer profits to low-tax jurisdictions were limited.Purpose of the study. The article discusses possible scenarios arising from the interaction of tax agreements and acts of EU tax law. It is necessary to take into account the obligation of the Member States to eliminate inconsistencies between acts of national legislation and acts of EU law. Member States have committed to achieve this goal at the time of EU accession and, therefore, before the adoption of any secondary EU law.Methodology. The research was carried out with the application of the formally legal interpretation of legal acts as well as the comparative analysis of international and European legal literature. Structural and systemic methods are also the basis of the research.The main results. Due to the clear coordination between the European Union and the OECD of actions in terms of establishing common measures to combat tax evasion and focusing on the subjective element of assessing potential abuse situations, a new standard for combating tax evasion has been established.Сonclusions. The author comes to the conclusion that the priority of the EU law over DTTs has been established. However, Member States retain the right to establish their own tax regimes and enter into tax treaties, thereby creating conflicts in legal regulation. In order to be directly applicable, the norm of the treaty must be clearly and definitely formulated, as well as be unconditional and independent of any national implementation measures.National legislation provides measures to eliminate the legal multiple taxation only for its residents. On the other hand, with respect to tax agreements concluded with third countries, the predominance of one system over another depends on the specific scenario, and in some cases the result achieved is the result of interpretation of existing provisions. In particular, tax treaties should prevail only when concluded before a state joins the EU.