Tax Treaties Research Articles

The Taxation of ‘Digital Nomads’ and the ‘3 W’s’: Between Tax Challenges and Heavenly Beaches

Work mobility is not something new, but it certainly received an important boost with the COVID-19 pandemic as many people began working remotely which reflected on their lifestyle. In this context, the objective of the present study is to analyse the challenges imposed by what is known as ‘digital nomads’ from the exclusive perspective of individual taxation. The first part aims to understand the first ‘W’, i.e., who the ‘digital nomads’ are and the factors that favour the choice for this type of work. Subsequently, it examines the impacts caused by the ‘digital nomadism’ in determining the tax residence (second ‘W’ – where) and presents the measures, albeit incipient and indistinguishable, adopted by some countries in relation to this phenomenon. The third section delves into the taxation of income obtained by ‘digital nomads’ through either an employment relationship or the provision of services (third ‘W’ – what). Based on the analysis of examples and the presentation of some alternatives, this study seeks to demonstrate the need to adapt the tax residence rules at both of the levels of domestic law and double tax treaties (tiebreaker rules). The rules on the taxation of income from employment and the provision of independent services also demand modifications that detach them from the strict need for a physical presence. Digital nomads’, work mobility, international taxation, tax residence, employment income, digital economy

Principal Purpose Test (PPT) As An Instrument To Detect Tax Treaty Abuse

Using descriptive qualitative method, this paper collects various references and literary sources regarding tax treaty abuse and policy recommendations that can be implemented to prevent tax treaty abuse, one of which is using Principal Purpose Test (PPT). Besides, this paper also explains Indonesia’s current tax regulations regarding PPT, as well as learns how other country like Australia could implement PPT into its own domestic tax regulations. From our discussion, it can be concluded that Organization for Economic Co-operation and Development (OECD) has recommended a series of policies to prevent tax treaty abuse, i.e. Multilateral Instrument in the form of General Anti-Abuse Rule (GAAR), which include PPT and other optional policies combined like Limitation on Benefit. Through Director General of Taxes Regulation Number PER-25/PJ/2018, Indonesia has actually started to implement PPT into domestic tax regulations, even though it is not as strict and complex as those of Australia, through its tax authority, Australia Tax Office (ATO). ATO, using PSLA 2019/D2, has also implemented step-by-step procedures to handle cases indicated to be related with tax treaty abuse

Налоговое резидентство физических лиц в России в условиях высокой трансграничной мобильности

The article explores rules on tax residence of individuals as set in the Russian nation legislation and double tax treaties. The author comes to the conclusion that in the context of high cross-border mobility of individuals the current Russian legal regulation of tax residence does not adequately protect the fiscal interests of the state, since it uses a criterion that allows taxpayers to choose if they want to be Russian tax residents or not in the current tax period and lose their tax resident status while maintaining real personal, social and economic ties with the state. At the same time the introduction of new criteria should not be based on blind copying of the experience of foreign countries or the provisions of double tax treaties, and the new rules should use unambiguous wording. In particular, if the terms “availability of a permanent home” or “centre of vital interests” are introduced to national legislation, their meaning should be explicitly defined.

Russian Anti-Offshore Policy: Current Regulation and Perspectives

The paper outlines the regulatory landscape of an anti-offshore policy in Russia. In the first part of this paper, the author gives an overview of effective regulations against offshore businesses that Russia has adopted in the past decade. The CFC rules were developed and subsequently passed because of Russia’s participation in the BEPS project. They are of the highest importance for the implementation of the anti-offshore policy. Other measures include transfer-pricing rules, registers of beneficial owners, exchange of financial information and revision of double tax treaties with Cyprus, the Netherlands, Luxembourg and Switzerland. Sanctions imposed by the EU, the USA, the UK and their allies against Russia, Russian individuals and companies in 2022 and counter-measures against Western countries and their residents introduced by Russian authorities also stimulate deoffshorization of the Russian economy. They have limited the free movement of capital between offshore holding companies and their Russian subsidiaries and, consequently, have contributed to the isolation of the Russian economy from the rest of the world, including its offshore infrastructure. The second part of the paper deals with the proposals for the Russian anti-offshore policy. The author shares his ideas on how to make the policy for deoffshorization of the Russian economy more effective. A few of these anti-offshore actions have already been implemented in draft laws and are currently being considered in the Russian Parliament. All of the measures that are being considered would result in unfavourable tax implications and possible damage to the reputations of those Russian individuals and organizations who still use offshore companies and trusts for the purposes of minimizing taxation and maintaining anonymity. The most important action proposed by the author for the implementation of the anti-offshore policy is the forced deoffshorization of strategic enterprises. Passing the relevant law would entail fundamental changes to the Russian business environment and result in the restoration of economic sovereignty over the Russian economy.

Personal Tax Planning: Foreign Tax Credits for Taxpayers with Cross-Border Employment Income

Foreign tax credits are an important mechanism to provide relief from double taxation of foreign-source income. With respect to cross-border employment income earned by Canadian taxpayers, there are multiple issues that may create significant complexity and potentially limit the availability of foreign tax credits. In this article, the authors provide an overview of the mechanics of claiming foreign tax credits under the Canadian Income Tax Act and the relevant provisions in certain bilateral income tax treaties. They also review some relevant technical interpretations issued by the Canada Revenue Agency and legislative jurisprudence in Canada with respect to cross-border employment income sourcing and the availability of foreign tax credits on such income.

The Effectiveness of the Multilateral Instrument in Amending the Bilateral Treaty Network: (On) the Measure of Multilateral Success

In this article, the authors discuss the implications of their study on the effectiveness of the Multilateral Instrument (MLI). Their analysis finds that there are 79 parties to the MLI and that the MLI covers 1,231 tax treaties and that the OECD currently overreports the effectiveness of the MLI.

Investment Obligations and Levies on VOD Media Service Providers and Cultural Policies of Member States

Digital video streaming platforms that provide on-demand services are subject to financial contributions stemming from media policy regulations in different countries, including the majority of EU Member States. In particular, such financial obligations include direct investments in European media works or indirect levies for national film funds. In 2018, the European Union revised the Audiovisual Media Services Directive, extending the scope of the financial obligations to cover not only the domestic media service providers established in the country that requires financial contribution but also foreign media service providers targeting the audience in this state. The provision was transposed (or is considered to be transposed) in the domestic legislation of at least 14 EU Member States. Yet, the technical design of the respective domestic provisions significantly varies, which can lead to distortive effects on investments and trade in the European Union, including due to the risk of double imposition of financial obligations by several Member States on the same income. In this article, the authors analyse tax-related issues regarding financial obligations, namely how certain well-established cross-border tax mechanisms can enhance the legislative AVMSD framework to achieve a better balance between the societal policy goal of promoting European culture, on one hand, and respecting economic rights in the implementation of the financial obligations for audiovisual media service providers under article 13(2) of the AVMSD on the other. From an international tax perspective, the authors analyse whether financial obligations, in particular the levy for national film funds, can be regarded as an earmarked tax on business income, its compatibility with double tax treaties, as well as whether it is covered by the commitment of the OECD Inclusive Framework Members to remove the unilateral measures similar to digital services taxes (DSTs) for the purposes of OECD Pillar One.

Normative Conflicts when Applying the Arm’s Length Principle: When Soft Law Developments Meet Hard Law Realities of National Legislation

The broad nature of the arm’s length principle embedded in article 9 of tax treaties gives rise to various interpretative issues. Even though the transfer pricing rules are drafted to reach an approximate arm’s length result, the open-ended nature of these rules make it difficult to assess their correct application. Adoption of these rules or norms within the domestic legal system leads to various normative conflicts at different levels. The aim of the authors in this article is to evaluate how the domestic application of the arm’s length principle takes place at different normative levels. Further, it also brings out the practical problems that could arise when “new” developments to the arm’s length principle are adopted at these normative levels.

Do Bilateral Tax Treaties Distort, Rather than Support, International Trade?

For more than a century, countries around the world have relied on a network of bilateral tax treaties to facilitate trade and provide stability for cross-border investments. But despite the widespread use of so-called “model” treaties such as the OECD Model, countries often use the process of negotiating tax treaties to achieve other, more parochial, interests. Leonard Wagenaar examines how these negotiations produce results that distort international trade, and posits that there may be another way to craft tax treaties that avoids or minimizes these distortions.

Saudi Arabia’s Tax Treaties: What Does Zakat Have to Do with Them?

Three trends can be found in every Saudi tax treaty – the inclusion of zakat in the Saudi tax, the zakat payer exclusion from the methods of eliminating double taxation and the absence of the non-discrimination article. This article investigates the justification for, and consequences of, the inclusion of zakat in Saudi treaties.

The UN-Sponsored Multilateral Fast Track Instrument – Barking up the Wrong Tree?

When it comes to bilateral tax treaties, there are those countries (primarily in the developed world) that follow the OECD Model, and those (mostly in the developing world, including the Global South) that follow the UN Model. To address this dichotomy between developed and developing countries – bipolarity to some – the United Nations is working on a Multilateral Fast-Track Instrument (MFTI), which would act much like the OECD’s Multilateral Instrument, albeit for a different purpose. Muhammad Ashfaq Ahmed reviews the touted benefits of the MFTI and explains why it is not only irrelevant, but also does not address the most pressing international tax issues facing the developing world.

Article: A Study of Vietnam’s Double Tax Treaties: Patterns of Treaty Growth and Shifting Treaty Policy

This article reviews the growth of Vietnam’s tax treaties and shifts in its treaty policies over the thirty-year period since the country created opportunities to attract foreign investment. It follows the incorporation of the Model Tax Treaties of the Organization for Economic Co-operation and Development (OECD) and the United Nations (UN) into its bilateral treaties and considers the limited apparent connection between treaties and foreign direct investment (FDI). A particularly interesting finding is the extent to which Vietnam’s treaties from the outset favoured the use of the UN Model provisions with respect to the definition of permanent establishments (PEs) and capital gains on the disposal of immovable property, particularly in its treaties with OECD members. This is ironic as measures from the OECD Model precedents are more likely to be found in treaties with non-OECD members. Nevertheless, it is clear that the treaties overall favour the allocation of taxing rights to Vietnam as a capital importing jurisdiction. These findings, when considered along with the country’s success at attracting FDI, suggest that developing economies can retain taxing rights and attract foreign investment at the same time. OECD Model treaty, UN Model treaty, tax treaties and foreign direct investment, transitional economy, evolving treaty policy

The concept of associated persons as a key and potentially problematic aspect in transfer pricing

Abstract Transfer pricing (TP) is based on many principles – the essential one is the Arm´s Length Principle (ALP). In this respect, the term “associated persons” is of crucial importance: associated persons must be involved in transactions in order for the ALP to be applied. The aim of the paper is to contribute to existing comparative analysis of TP rules – specifically, to provide a critical analysis of the term “associated persons” as prescribed by domestic law in Brazil, the Czech Republic, and Latvia. The key goals of the research conducted were to provide a comprehensive picture of the variety of definitions, to indicate relationships between international law and domestic law, and last, but not least, to highlight various concepts of the term “associated persons” and to identify problematic aspects connected with the interpretation of the definitions and the applications of the related rules. The study, which is based on qualitative research, is exploratory and interpretative in its nature. Its results present a background for further research and point to the fragmentation of law on TP with respect to the investigated issue. On the basis of the results of the comparative study one can conclude significant differences among, and fragmentation in, the definitions of the term “associated persons” both in respect of the number of categories established and in respect of the absence of the autonomy of the definitions of the term “associated persons” as provided by public law (especially by income tax acts). At the same time one can conclude the same position regarding the application of double tax treaties in all the countries for which the study was carried out.

The Concept of Final Losses under EU Law and Its Scope of Application

In the context of the recent ECJ decision in W AG (Case C-538/20), this article examines whether the ECJ has possibly, de facto, abandoned the legal concept of final losses or whether it wants to see it continue to be applied as a restrictive ultima ratio exception (based on its long line of case law) in accordance with the principle of proportionality. In this respect, the ECJ’s line of case law will be analysed, including the recent decision in W AG on final losses from permanent establishments exempt under a tax treaty.

Mandatory Refererence to the OECD Commentary for Tax Treaty Interpretation PURPOSES - is it necessary? A Case Study of the New Protocol to 2002 Indonesia � the Netherlands Tax Treaty signed on 30 July 2015

Mandatory Refererence to the OECD Commentary for Tax Treaty Interpretation PURPOSES - is it necessary? A Case Study of the New Protocol to 2002 Indonesia � the Netherlands Tax Treaty signed on 30 July 2015

Italian Budget Law for 2023 Introduces a Land-Rich Clause for Italian-Sourced Capital Gains

In this note, the authors analyse the new provision on capital gains taxation in respect of participations in resident and non-resident “land-rich” companies realized by non-resident entities, as contained in the Italian Budget Law for 2023 (introduced in response to a wave of new OECD rules on cross-border capital gains). The introduction of the new rule from 1 January 2023 will be particularly significant once the MLI enters into force within the Italian tax treaty network.

Action 4 of the OECD/G20 Base Erosion and Profit Shifting Project and the Non-Discrimination Clauses in South Africa’s Tax Treaties

In this article, the author considers the implications of Action 4 of the OECD/G20 Base Erosion and Profit Shifting Project in relation to the non-discrimination clauses in the tax treaties that South Africa has concluded and how it impacts the country’s domestic legislation enacted to advance the goals of Action 4.

Tax Treaty Dispute Resolution Procedures

The subject of the work is a comparative analysis of the OECD approach and the EU approach to the resolution of international tax disputes. The research is conducted on the basis of the provisions of the OECD Model Tax Convention, the OECD Multilateral Tax Convention, the EU Arbitration Convention and the EU Directive. The purpose of the work is to find the most effective mechanism for resolving international tax disputes in terms of ensuring the protection of taxpayers' rights in the dispute resolution procedure. The methodological basis of the work was made up of general scientific (analysis, classification, synthesis, deduction, induction, analogy), private scientific (system method) and special legal (formal legal and comparative legal) methods of scientific research. The scientific novelty of the work suggests the proposal and justification as a way to increase the effectiveness of the resolution of international tax disputes, the use of mediation in a mutually agreeable procedure with the provision of the taxpayer with the possibility of direct participation in the dispute resolution procedure. Based on the results of the study, the author came to the following conclusions. The practice of applying the mutual agreement procedure and arbitration shows that this dispute resolution mechanism has a number of significant drawbacks. In order to improve the efficiency of dispute resolution, the OECD and the EU are striving to develop mandatory arbitration and do not consider non-binding mechanisms, since they do not guarantee an agreement on the dispute. However, mandatory arbitration cannot be considered a universal instrument, since States see it as a threat to sovereignty. The experience of States that actively use mediation to resolve domestic tax disputes shows that mediation can also become an effective mechanism for resolving disputes at the international level, since it allows the parties to consider various aspects of the dispute from different sides. According to the author's position, the shortcomings of mediation outlined in the doctrine can be mitigated by granting the affected taxpayer the right to participate directly in mediation, presenting his position on the case.

Article: Pillar 2, Tax Competition, and Low Income Sub-Saharan African Countries

This article explores the implications of Pillar 2 of the G20/OECD Inclusive Framework Blueprint for global tax reform on tax incentives and tax competition in the countries of Sub-Saharan Africa (SSA). It addresses both the impact of the minimum effective tax developed under the Global Anti-Base Erosion (GloBE) model rules, and of the Subject to Tax Rule (STTR) for limited modification of existing bi-lateral tax treaties between SSA countries and various treaty partners. In the GloBE context the article examines the interaction of the substance-based income exclusion (SBIE), the qualified domestic minimum tax (DMT) and existing domestic turnover based minimum taxes in the region, and the proposed qualified refundable tax credit (QRTC) rules. In regard to the STTR it looks at the incentives, or lack thereof, for treaty renegotiation in the existing context of multi-national tax planning and income stripping. The article concludes that SSA countries should, if Pillar 2 is ultimately implemented by a critical mass of advanced countries, adopt the qualified domestic minimum top up tax (QDMTT), as proposed in the December 2021 promulgation of the detailed GloBE rules. The benefits of other actions, such as the adoption of QRTCs, or treaty renegotiation under the proposed STTR, are more ambiguous. Pillar 2 would introduce important fundamental changes to the international tax architecture, through agreement, at least, that there should be some limits on tax competition and profit shifting. It is, though, a far cry from the 15% minimum tax on corporate profits generally portrayed. The highly complex exceptions and structure explored in the article illustrate both the technical and political difficulties involved in attempting to stem the erosion of the global corporate profits tax. Corporate tax, International tax, Minimum taxation, Pillar 2

Calculating the country risk embedded in treaty-shopping networks

This paper constructed a tax treaty network to measure the country risk embedded in treaty-shopping networks. The results showed that when moving dividends directly without treaty shopping, MNEs were taxed at 11.2 %, but with treaty shopping, a tax rate of 5.3 % was imposed. When detouring around risk countries, MNEs paid taxes at a rate of 4.5 %. Clearly, MNEs can minimize their tax burdens by detouring around risk countries. In the case of dividends, intermediate routes included the UK, Sweden, Kuwait, Spain, and Denmark. These countries except the UK were not previously known as conduit countries. We also looked at network changes in individual countries. When moving funds outward from China, Iran, and Venezuela, MNEs detouring around risk countries incurred reduced tax-saving benefits on interest income and royalty income. However, when moving funds from the US to China, Saudi Arabia, Japan, Russia, Ireland, and the UK, treaty-shopping benefits remained unchanged even if risk countries were bypassed. Among risk countries, those with less risk applied higher tax rates. In the case of dividends, the riskier the country, the lower the dividend income tax rate. This situation results from a desire to attract FDI. We reflected the country risk in our treaty-shopping model.