International Law & the Right to Tax

1. Corp.'s residence for tax purposes. All nations claim, as

an incident of national sovereignty, the right to tax the worldwide income of their residents. The overall issue is, therefore, whether for tax purposes Corp. is a resident of

1.1 Assumption. Since both East Banistan and Ukraine might

claim Corp. as a resident, the possibility of double taxation arises which East Banistan and Ukraine might deal with under an income tax treaty between them. Since none is mentioned in the hypothetical, the assumption is that no such treaty exists and each country is free to choose which of the several internationally recognized grounds for residence are applicable to Corp.

1.2. Limitations, if any, imposed by international law.

Traditionally, under international law, each State is presumptively free to exercise jurisdiction over what it concludes are its residents. The Lotus Case (PCIJ Reports, Series A, No. 10) (1927) decided that "the onus of proof lies on the State denying the exercise of jurisdiction by the other state"

(Qershi, p. ). Although the Lotus ruling has been much criticized in more modern times as justifying overextension of state tax jurisdiction, still no single test of corporate residence is generally recognized as customary international law which might restrain state taxing authorities. (See Albrecht, 1952, p. 152).

1.3 Subissue: criteria for establis

. . .
owing from whether it is or not. 2.1 All nations seek to tax income whose source is within its borders. Definitions of what is locally sourced income is a function of the domestic law of each State as modified by income tax treaties between that State and other States. Under the broadest possible definition of locally sourced income, all sales by foreign countries to a given State are taxable locally. "the whole profit from export is to be taxed in the country of destination, since it is regarded as part of the sales price paid by that country." (Model 13, materials, p. 13). Under this theory, the United States could tax the entire profit from the sale of computer software products there through UDI and other agents. 2.2 Australia and the United States have an income tax treaty in effect between them. Under it, the United States regards as U.S. source income only that portion of sales which take place there and are attributable to the activities of the four Australian taxpayers which constitute a permanent establishment in the United States. This is generally the case in trading relationships among developed countries. Patrick says "both domestic laws of some countries, . . . and all standard income tax treaty provisions,
. . .

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Approximate Pages = 6 (250 words per page)

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