Tax Treaty
Essay by Putra Indonesia El Harry • December 6, 2015 • Coursework • 1,067 Words (5 Pages) • 787 Views
TAX TREATY
A tax treaty that existed between 2 countries is based on certain model
Two worldwide recognize model used :
- Organization for economic cooperation and development (OECD) model
- Made by OECD (formerly by league of nations)
- Given most of taxation might to domicile country
- OECD country mainly a developed countries, where capital technology and HR come from
- United Nations (UN) model
- Made by UN
- Given most of taxation rights to source country
- More suitable for developing countries, as a destination investment country of developed countries
Other models (limited) :
- United States (US) model
Only applying for USA tax treaty with other countries → similar with OECD model, even more aggressive toward domicile country
- Nordic Convention
Only applying in certain Northern European/ Scandinavian country → more balanced between source and domicile country
- Caricom Agreement
Only applying in central America and Caribbean Island country → similar with UN model, even more aggressive to source country
Tax Treaty as Source of International Tax Law
- Agreement is bond two parties, must be conducted with good faith
- Country that enter into tax treaty must be realized that tax treaty will limit the country tax laws
- Compromises between each countries involved
- Tax treaty is a Lex Specialis (specific laws), and remember the principle Lex Specialis Derogat Lex Generalis (specific laws prevail over general laws)
- Tax laws issued after tax treaty can’t override the tax treaty itself Lex Posterior Generalis Non Derogat Legi Prori Specialis
OECD Model Content
- Introduction
- Text → tax treaty model regarding taxation on income and capital
- Commentaries → explanation of text
- OECD countries position when :
- It has different views on certain articles (reservation)
- It has different views on certain commentaries (observation)
- Non OECD countries position
Text of OECD Model
Chapter I Scope of the convention | |
Article 1 Article 2 | Persons covered Taxes covered |
Chapter II Taxation of Income | |
Article 3 Article 4 Article 5 | General definitions Residents Permanent establishments |
Chapter III Taxation of Income | |
Article 6 Article 7 Article 8 Article 9 Article 10 Article 11 Article 12 Article 13 Article 14 Article 15 Article 16 Article 17 Article 18 Article 19 Article 20 Article 21 | Income from immovable property Business profit Shipping, inland waterways and air transport Associated enterprise Dividend Interest Royalties Capital gain Income from professional service Income from employment Director’s fee Artists and sportsman Pension Government service Student Other income |
Chapter IV Capital | |
Article 22 | Capital |
Chapter V Methods of Elimination of Double Taxation | |
Article 23A Article 23B | Exemption method Credit method |
Chapter VI Special Provisions | |
Article 24 Article 25 Article 26 Article 27 Article 28 Article 29 | Non discrimination Mutual agreement procedure Exchange of information Assistance in the collection of taxes Members of diplomatic missions and consular posts Territorial extension |
Chapter VII Final Provisions | |
Article 30 Article 31 | Entry into force Termination |
Types of Income That “May be Taxed”
No. | Types | Explanation |
Article 6 | Income from immovable property | - |
Article 7 | Business profit | If the business type is permanent establishments |
Article 10 | Dividend | Can be imposed in domicile country only and also on source country and domicile countries |
Article 11 | Interest | Can be imposed in domicile country only and also on source country and domicile countries |
Article 13 | Capital gain | Except, if provisions in article 13:5 fulfilled |
Article 14 | Income from professional service *deleted since 2000 | If professional service has a fixed base in source country |
Article 15 | Income from employment | If one of this condition fulfilled (1) Employment is more than 183 days in 12 months; (2) Income paid by employer, which is a resident of source country; (3) Income paid by employer is recognized as an expense by PE in source country |
Article 16 | Director’s fee | - |
Article 17 | Artists and sportsmen | - |
...
...
(2015, 12). Tax Treaty. ReviewEssays.com. Retrieved 12, 2015, from https://www.reviewessays.com/essay/Tax-Treaty/74088.html
"Tax Treaty" ReviewEssays.com. 12 2015. 2015. 12 2015 <https://www.reviewessays.com/essay/Tax-Treaty/74088.html>.
"Tax Treaty." ReviewEssays.com. ReviewEssays.com, 12 2015. Web. 12 2015. <https://www.reviewessays.com/essay/Tax-Treaty/74088.html>.
"Tax Treaty." ReviewEssays.com. 12, 2015. Accessed 12, 2015. https://www.reviewessays.com/essay/Tax-Treaty/74088.html.