Principles of International Taxation

883 Pages·2016·6.821 MB·English

by  Mulligan, Emer;Oats, Lynne

Principles of
International Taxation
ii
Principles of
International Taxation
Sixth Edition
Lynne Oats PhD
Professor of Taxation and Accounting,
University of Exeter
Angharad Miller PhD, FCA, CTA
Senior Lecturer in Taxation, Bournemouth University
Emer Mulligan PhD, AITI
Lecturer in Taxation and Finance,
National University of Ireland, Galway
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Preface
The principal aim of this book is to present the topic in an accessible m anner to
those who are fairly new to international taxation or, indeed, are new to taxation
in any guise. It will be useful for university students, for those preparing for
professional qualifications, and for practitioners generally.
Angharad Miller and I first embarked on this project in 2006, at her instigation,
with the aim of producing a text to underpin an introductory course in inter-
national taxation on a wide range of undergraduate and postgraduate degree
programmes. The book also aims to be useful to practitioners and policymak-
ers who want to get back to basics and examine what lies beneath the current
complexities of international tax rules, or perhaps to acquire a broader under-
standing of the principles. The book does not provide a comprehensive legal
reference work on the topic, since others have done this already, but rather
a solid foundation in the principles and policies of international taxation in
generic terms, as well as an introduction to some UK-specific rules. To achieve
this, the book blends theory, policy and practical application for each of the
topics under discussion. Additional reading is suggested within each chapter.
This is drawn from a wide range of sources including, but not limited to, legal
texts, and practitioner and academic journal articles.
This is the last edition of the book that Angharad will be actively involved
in, and in this edition we are joined by Emer Mulligan, from the National
University of Ireland, Galway.
This book examines international tax principles primarily from the viewpoint
of a multinational group of companies. However, where appropriate, the
concerns of the tax authorities are addressed, and wherever possible we have
advanced the reasoning behind the various anti-avoidance measures affecting
international groups. The international taxation of high net worth individuals
and trusts is not covered in this book, although we devote two chapters to the
taxation of expatriate staff.
The sixth edition updates all the chapters and, throughout the book, new text
examines developments in light of the OECD BEPS Project work. Rather than
attempt to summarize the BEPS Project separately, BEPS recommendations are
integrated into each chapter, setting out the main recommendations, and offering
some explanation and comment on these. The BEPS material includes events
subsequent to the release of the final reports in October 2015 up to June 2017.
As with the previous edition, we have borne in mind the requirements of stu-
dents preparing for the Advanced Diploma in International Tax (ADIT) as
offered by the Chartered Institute of Taxation. These students may find the
‘Further study’ sections which we have appended to certain chapters to include
more complex or detailed issues very useful, but students on more general
courses of study could be advised that these sections are optional reading.
v
Preface
The first chapter is a brief introduction to taxation, including the different
forms that taxation may take and how tax systems are designed and adminis-
tered, which can be skipped by those with some basic level of understanding of
taxation in general. Chapters 2 to 6 are designed to introduce some key issues
in international taxation, globalization, residence, source, double taxation and
an introduction to double tax treaties. Chapters 7 to 12 consider what happens
when one moves from doing business with another country to doing business
in another country, and examine key features of the operation of double tax
treaties. Chapters 13 to 19 examine the way in which differences in tax systems
can be exploited by taxpayers to minimize global tax liabilities, and the meas-
ures adopted by governments to combat perceived tax avoidance. In Chapters
20 to 22, we examine respectively: the influence of the European Union on
direct taxation; indirect taxes, particularly VAT; and tax and development.
Lynne Oats
June 2017
vi
Contents
Page
Preface v
Abbreviations ix
Glossary xi
Table of Statutes xxi
Table of Statutory Instruments xxiii
Table of European Legislation xxv
Table of Cases xxix
Chapter 1 Introduction to Taxation 1
Chapter 2 Introduction to International Taxation 20
Chapter 3 The Right to Tax Individuals 48
Chapter 4 The Right to Tax Companies 76
Chapter 5 The Double Tax Problem 94
Chapter 6 Double Tax Relief in Practice 110
Chapter 7 Double Tax Treaties 143
Chapter 8 Internationally Mobile Employees 208
Chapter 9 Permanent Establishments 226
Chapter 10 Taxation of Cross-border Services 291
Chapter 11 Structuring a Foreign Expansion 323
Chapter 12 Finance, Treasury Management and Tax Arbitrage 347
Chapter 13 Transfer Pricing Practice 412
Chapter 14 Transfer Pricing Administration 462
Chapter 15 Improper Use of Tax Treaties 476
Chapter 16 Introduction to Tax Havens 526
Chapter 17 Controlled Foreign Companies 549
Chapter 18 Tax Evasion 591
Chapter 19 Tax Planning Strategies of Multinational Groups 635
Chapter 20 European Corporation Tax Issues 664
Chapter 21 VAT, Customs, and Excise Duties 725
Chapter 22 Tax and Development 767
Appendix Articles of the OECD Model Tax Convention
on Income and Capital 785
Index 807
vii
viii
Abbreviations
AEOI Automatic exchange of information
AOA Authorized OECD approach
APA Advance pricing agreement
ATAD Anti-Tax Avoidance Directive
B2B Business-to-business
B2C Business-to-consumer
BEPS Base erosion and profit shifting (BEPS Project)
CA English Court of Appeal (from which appeal lies to the UK
Supreme Court, and formerly to the UK House of Lords)
CAFC Court of Appeals for the Federal Circuit (from which appeal lies
to the US Supreme Court)
CbCR Country-by-country reporting
CCCTB Common consolidated corporate tax base
CCTB Common corporate tax base
CEN Capital export neutrality
CFC Controlled foreign company
CIN Capital import neutrality
CJEU Court of Justice of the EU (formerly European Court
of Justice (ECJ))
CON Capital ownership neutrality
CPM Comparable profits method
CPR Civil Procedure Rules (rules that govern civil litigation
procedure in England and Wales)
CRA Canada Revenue Agency
CRS Common Reporting Standard
DAC Directive on Administrative Cooperation in the Field of Taxation
DTA Double Taxation Agreement
DTT Double Tax Treaty
EBIT Earnings before interest and tax
EBITA Earnings before interest, tax and amortization
EBITDA Earnings before interest, tax, depreciation and amortization
EC European Commission
EEA European Economic Area (consisting of the EU plus Iceland,
Liechtenstein and Norway)
EFTA European Free Trade Area (Iceland, Liechtenstein, Norway and
Switzerland)
EIOR Exchange of information on request
EU European Union (formerly the European Community)
FATCA Foreign Account Tax Compliance Act
FDI Foreign direct investment
FTT Financial transaction tax
G8 Group of 8
ix