Page 4

certain activities are conducted for certain periods of time even where a PE would not otherwise exist even where a resident of one county does not conduct its business activities in another country through a fixed place or business a PE may still be found to exist in that other country where the business is carried out through a person in that other country that has the authority to conclude contracts on behalf of the resident of the first country thus a resident of one country cannot avoid being treated as having a PE by acting through a dependent agent rather than conducting its business directly however carrying on business through an independent agent will generally not result in a PE withholding taxes many tax systems provide for collection of tax from non-residents by requiring pairs of certain types of income to withhold tax from the payment and remit it to the government such income often includes interest dividends royalties and payments for technical assistance most tax treaties reduce or eliminate the amount of tax required to be withheld with respect to residents of a treaty country income from employment most treaties provide mechanisms eliminating taxation of residents of one country by the other country where the amount or duration of performance of services is minimal but also taxing the income in the country performed where it is not minimal most treaties also provide special provisions for entertainers and athletes of one country having income in the other country though such provisions very highly also most treaties provide for limits to taxation of pension or other retirement income tax exemptions most treaties eliminate from taxation income of certain diplomatic personnel most tax treaties also provide that certain entities exempt from tax in one country are also exempt from tax in the other entities typically exempt include charities pension trusts and government-owned entities many treaties provide for other exemptions from taxation that one or both countries as considered relevant under their governmental or economic system harmonization of tax rates tax treaties usually specify the same maximum rate of tax that may be imposed on some types of income as an example a treaty may provide that interest earned by a non-resident eligible for benefits under the treaty is taxed at no more than five percent however local law in some cases may provide a lower rate of tax irrespective of the treaty in such cases the lower local law rate prevails provisions unique to inheritance taxes generally income taxes and inheritance taxes are addressed in separate treaties inheritance tax treaties often cover estate and gift taxes generally fiscal domicile under such treaties is defined by reference to domicile as opposed to tax residence such treaties specify what persons and property are subject to tax by each country upon transfer of the property by inheritance or gift some treaties specify which party bears the burden of such tax but often such determination relies on local law most inheritance tax treaties permit each country to tax domiciliaries of the other country on real property situated in the taxing country property forming a part of a trade or business in the taxing country tangible movable property situated in the taxing country at the time of transfer and certain other items most treaties permit the estate or donor to claim certain deductions exemptions or credits in calculating the tax that might not otherwise be allowed to non domiciliaries double tax relief nearly all tax treaties provide a specific mechanism for eliminating it but the risk of double taxation is still potentially present this mechanism usually requires that each country grant a credit for the taxes of the other country to reduce the taxes of a resident of the country the treaty may or may not provide mechanisms for limiting this credit and may or may not limit the application of local law mechanisms to do the same mutual enforcement taxpayers may relocate themselves and their assets to avoid paying taxes some treaties thus require each treaty country to assist the other in collection of taxes and other enforcement of their tax rules most tax treaties include at a minimum a requirement that the country's exchange of information needed to foster enforcement tax information exchange agreement the purpose of this agreement is to promote international cooperation in tax matters through exchange of information it was developed by the OECD global forum working group on effective exchange of information the working group consisted of representatives from OECD member countries as well as delegates from Aruba Bermuda Bahrain Cayman Islands Cyprus Isle of Man Malta Mauritius the Netherlands Antilles the Seychelles and San Marino the agreement grew out of the work undertaken by the OEC d to address harmful tax practices the lack of effective exchange of information is one of the key criteria in determining harmful tax practices the Mandate of the working group was to develop a legal instrument that could be used to establish effective exchange of information the agreement represents the standard of effective exchange of information for the purposes of the o ekta euro unregistered trade mark s initiative on harmful tax practices this agreement which was released in april two thousand two is not a binding instrument but contains two models for bilateral agreements a number of bilateral agreements have been based on this agreement dispute resolution nearly all tax treaties provide some mechanism under which taxpayers and the countries can resolve disputes arising under the treaty generally the government agency responsible for conducting dispute resolution procedures under the treaty is referred to as the a euro OE competent authority o of the country competent authorities generally have the power to bind their government in specific cases the treaty mechanism often calls for the competent authorities to attempt to agree in resolving disputes limitations on benefits recent treaties of certain countries have contained an article intended to prevent treaty shopping which is the

UNIVERSITY PROPOSAL IDEAS  
UNIVERSITY PROPOSAL IDEAS  
Advertisement