Tuesday, March 29, 2005

Taxing e-bay!

What would you think if your tax authority started taxing income derived from sales in e-auctions, like the famous e-bay? This is closer to reality than you imagine. According to a recent Associated Press story the IRS May Consider eBay Sales Taxable Income.

This may suggest that with regards to the discussion about “e-taxation” we are certainly not at the beginning of the end, but that we are, perhaps, at the end of the beginning. In fact, Richard M. Bird, published recently in the BIFD an article called Taxing Electronic Commerce: The End of the Beginning? Which gives some useful insights into the current unfinished discussion.

According to Richard Bird, “to date, most of the discussion on income taxes has focused on three problems: How can we attribute income arising in “cyberspace” to a particular jurisdiction?, How can we characterize such income?, and most importantly, How can it be taxed? One way to deal with these problems may be to reduce the importance presently attached to the characterization of income in determining its tax burden. Under present conditions, distinguishing between a “royalty”, a “service fee”, “interest”, “dividends” and “management fees” is often an exercise in futility, with the best lawyer and accounting firm winning. Nonetheless, considerable attention has been paid, notably in the OECD working groups, to such issues, in part simply because that is now how these things are generally done. For example, some forms of income have been characterized as profits (e.g. web site hosting and online auctions) and some as royalties (e.g. downloading with the right of reproduction). The importance of this distinction is that profits are, under existing rules, primarily subject to tax in the country of source, while royalties are taxed in the country of residence (although sometimes subject to source withholding)”.

Wednesday, March 23, 2005

Cross-Border Tax Arbitrage - finding a distortion

Cross-border tax arbitrage can be defined as “taking advantage of inconsistencies between different countries’ tax rules to achieve a more favorable result than that which would have resulted from investing in a single jurisdiction”. Examples include dual resident companies and double dip leases, partnerships, etc. Basically, with a good structure an enterprise may end up claiming the same deduction in two countries. As you can imagine, this structures raise a great deal of attention, not only from a legal perspective but also from an economical standpoint.

Daniel N. Shaviro from New York University has published recently More Revenues, Less Distortion?: Responding to Cross-Border Tax Arbitrage. Here is a short abstract:

This paper briefly examines cross-border tax arbitrage in light of national and worldwide welfare considerations, along with an additional point: the importance of countries’ strategic interactions, which are directly raised in this setting. It concludes that the transactions, while not really arbitrages or tax arbitrages as these terms are commonly used, can have troubling efficiency consequences. Accordingly, where duplicative tax benefits are being achieved in each of two countries, either country, by unilaterally denying its benefit, may combine raising revenue with increasing both national and worldwide efficiency. The only problem is that the other country may want to share in the revenue gain from allowing the tax benefits, potentially leading to double denial of any tax benefit. While this is probably not as bad a result as duplicative allowance of tax benefits, since taxpayers can use self-help to minimize the resulting problems, it suggests that bilateral coordination to allow the tax benefits a total of only once may be the best response when feasible. While this would require greater coordination between countries’ tax systems than has been usual to date, it does not require anything approaching worldwide harmonization of tax systems. Countries need not adopt the same rules in order to cooperate in addressing peculiar interactions between their rules.
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=557866

Tuesday, March 22, 2005

Australia - ISP does not constitute a PE

An interesting ruling from the Australian Tax Authorities concluded that where the sole presence of an enterprise in Australia is a website hosted by an Australian ISP, the enterprise does not (in principle) have a permanent establishment in Australia.

The Commissioner of Taxation issued in March 2005 a final taxation determination (TD 2005/2) regarding whether a resident of Australia's tax treaty partner has a permanent establishment (PE) in Australia solely from the sale of trading stock through an internet website hosted by an Australian resident internet service provider (ISP). TD 2005/2, which was previously released in draft form as TD 2004/D27, provides that where the ISP is acting as a mere conduit, the business profits article of the relevant treaty will apply. The non-resident will not, by virtue of the website alone, have a PE in Australia.

This determination is based on the following three assumptions:
(1) the taxpayer, as a resident of Australia's treaty partner, is entitled to the benefits of the relevant treaty;
(2) the ISP is carrying on a business as an ISP, is dealing at arm's length with the taxpayer and does not provide other services to the taxpayer in addition to the hosting arrangement which may give rise to a PE of the taxpayer; and
(3) any income from the sale is covered by the business profits article of the relevant treaty and not some other article.

Give a look at the taxation determination (TD 2005/2)

Monday, March 21, 2005

WTO rules vs Income Tax Treaties - Additional Reading

For the true aficionados here are some extra references to articles that discuss the issues mentioned in my earlier post.

Paul R. McDaniel, The David R. Tillinghast lecture - Trade agreements and income taxation: Interactions, conflicts, and resolutions, Tax Law Review, 2004, 57, pp. 275

In this Article the author expands upon prior work in which he briefly explored how trade agreements and a nation's corporate income tax system do and should interact. The author examined the World Trade Organization (WTO) decision in the challenge by the European Union (EU) to the Foreign Sales Corporation (FSC) provisions of the Code. The Author also reviews the similar attack by the European Commission on prohibited state aids under the Treaty of Rome. In this article the author undertakes a detailed examination of the WTO decisions in Section II and then in Section III, assess the correctness of the decisions from a legal/structural perspective; that is, were the decisions legally correct under WTO agreements and were they consistent with the structure of a corporate income tax? Section IV analyzes the decisions from an economic perspective. What was the impact of the decision on both U.S. and worldwide welfare? In Section V, the author addresses whether the decisions unduly impinged on U.S. sovereignty and discuss some political arguments made to support the U.S. position in the FSC/ETI disputes. Section VI summarizes the conclusions the author draws from the analyses.

Joel Slemrod &Reuven Avi-yonah, (How) should trade agreements deal with income tax issues?, Tax Law Review, 2002-4, pp. 533-554

What is the relationship between the international tax regime, as embodied in bilateral international tax treaties, and multilateral free trade agreements like the General Agreement on Tariffs and Trade? Are their fundamental goals consistent or inconsistent? If they are inconsistent, should the tax treaties or the GATT be changed to remedy the inconsistency? If they are consistent, should the scope of either be expanded to include the other? These are the underlying policy questions on which this Article is meant to shed light. The authors begin by stating and, in violation of a longstanding scholarly tradition, briefly answering three intermediate questions. They then expand on the reasoning that leads them to these answers and address the broader questions stated above.

Paul R. McDaniel, The Impact of Trade Agreements on Tax Systems, Intertax, 2002-5, pp. 166-171

Countries entering into trade agreements, in order to assure free movement of goods, labour and capital, give up significant aspects of their sovereignty. The impact that these non-tax agreements have or should have on their signatories' tax systems is examined in the context of the treaty provisions governing the World Trade Organization and those governing the EU.

WTO rules vs Income Tax Treaties

An interesting paper on the issue of WTO vs income tax treaties was recently published. The discusson has started some years ago about the relationship between WTO rules and income tax treaties. In that regard, some commentators suggest that the international tax regime, which evolved around the OECD model tax convention, should be subjected to and embedded into the framework of the WTO rules. Other commentators view the relationship in a differen way, supporting an international tax regime constructed in compatibility with WTO law, but not subject to its dispute settlement process. Yariv Brauner (Arizona State) has posted an interesting paper called “International Trade and Tax Agreements May be Coordinated, but not Reconciled” Here is an abstract

The article observes that the international trade and tax regimes cannot be simply reconciled or somehow meshed together, yet, it argues that their policies could (and should) be coordinated, with some adjustments made to the present legal constructs. It suggests that such coordination would benefit from the establishment of an international tax organization, which shall be responsible to making the evolving international tax regime more compatible with the international trade regime (but not part of the WTO). The article analyzes and rejects other solutions, primarily the one I call the tax expenditure solution, which is based on the contention, rejected in this article, that the international tax and trade regimes do not conflict, which proponents are willing to subject some aspects of income tax laws to WTO scrutiny as they are, without any adjustments. Finally, the article argues that coordinating international tax and international trade policies may be beneficial to both regimes even apart from the solution of the aforementioned incongruity.


Friday, March 18, 2005


"The difference between tax avoidance and tax evasion is the thickness of a prison wall."
Denis Healey

OECD releases proposed 2005 update to Model Convention

The OECD released the proposed 2005 update of the OECD Model Convention on 15 March 2005. The update is to be finalized in the spring of 2005 and comments are invited before 27 April 2005.
The proposals are mainly based on previous OECD reports, such as the reports on (i) international traffic, (ii) stock options, (iii) definition of permanent establishment, (iv) cross-border pensions and (v) exchange of information.
Other proposals relate to the Commentaries on Arts. 10 (dividends), 11 (interest), 12 (royalties), 13 (capital gains), 15 (income from employment) and 20 (students).

Monday, March 14, 2005

Pay your tax or don’t sleep for a week!

If tax authorities of some European countries read this news they may have some insight on new methods on how to bring extra cash to their already tight budgets.

According to Reuters, tax defaulters in southern India are being forced to face the music after city authorities hired drummers to play non-stop outside their homes until they pay up.

After many residents ignored repeated demands to settle overdue property taxes. authorities in a city in Andhra Pradesh state have sent 20 groups of drummers to play outside offenders' houses for the past week. The new method seems to be working, though. One week of incessant drumming has cleared 18 percent of the backlog.

Friday, March 11, 2005


"If you don't drink, smoke, or drive a car, you're a tax evader."
Thomas S. Foley

Thursday, March 10, 2005

Cross-border business restructuring operations under increased scrutiny

The OECD Centre for Tax Policy and Administration (CTPA) held its 2nd roundtable on 26 and 27 January 2005 in Paris. The purpose of the roundtable was to discuss tax implications of cross-border business restructuring operations. The roundtable was attended by senior officials, from both OECD member countries and non-OECD countries, as well as representatives from the private sector.
The discussion covered the following topics:
- Economic and commercial background of business restructuring;
- Tax aspects of the transactions undertaken as part of the restructuring;
- How to determine the income of the limited function entity;
- Permanent establishment issues raised by business restructuring operations; and
- VAT aspects of supply chain structures.
The roundtable spotlight on business restructuring operations comes at a time where such conversions are increasingly under the scrutiny of tax authorities. The next CTPA Roundtable is scheduled for January 2006.
A brief summary of the roundtable discussions has been published on the OECD website.

"Recent Developments in Tax Treaty Practice – the Case Study Conference"

"Recent Developments in Tax Treaty Practice – the Case Study Conference"
Chairman Prof. Dr. Michael Lang
The International Tax Law Summer Conference will be held in Rust, Austria from 10-14 July 2005.
· International Fiscal Association (IFA),
Austrian Branch
· Department of Austrian and Inte- national Tax Law, Vienna University of
Economics and Business Administrtion
· Research Institute for European and
International Tax Law, Vienna
· Akademie der Wirtschaftstreuhänder GmbH, Vienna

For more details:

Wednesday, March 09, 2005

Environmental Taxation - New book on the market

Critical Issues in Environmental Taxation, Vol. II: International and Comparative Perspectives

Critical Issues in Environmental Taxation is an internationally refereed publication devoted to environmental taxation issues on a worldwide basis. It seeks to provide insights and analysis for achieving environmental goals through tax policy. By sharing the perspectives of the authors in response to the diverse challenges posed by environmental taxation issues, effective approaches used in one country may be considered and possibly implemented by governmental authorities in other countries. This volume (the second in the annual series) contains 37 articles written by authors from 12 countries, with the articles grouped into five categories by topic. Preliminary drafts of the articles were presented at the Fourth Annual Global Conference on Environmental Taxation Issues held on June 5-7 2003 in Sydney, Australia. The articles in this volume were selected after being subjected to a rigorous peer review process. The articles are interesting, thought provoking, and have been written by some of the best environmental taxation scholars in the world.

Hope Ashiabor (Macquarie University, Department of Business Law)
Kurt Deketelaere (University of Leuven)
Larry Kreiser (Cleveland State, College of Business)
Janet Milne (Vermont)

To buy the book:

Tuesday, March 08, 2005

A good line of defense for a tax case?

In a recent U.S. Tax Case, the defendant said the money (transferred to tax havens) was to do good deeds and not to avoid tax! Jailed and held without bond in the nation's largest alleged personal tax-evasion scheme, telecom investor Walter Anderson says the federal government has got it all wrong. He isn't a tax cheat, he said Wednesday night in a conference room at the D.C. jail. Sending millions of dollars to offshore havens -- which the government alleges he did to evade around $200 million in taxes -- was part of a legitimate and long-standing plan. He was going to use the money to change the world. To fight for arms control and human rights. To promote family planning and space exploration. He was going to give the money away, starting next year.

To bad he was caught! I have a feeling that this line of defense is a bit to late and mill not produce very successful results! But in the US you never know!

A Loss to U.S. International Tax

According to the NY Times, Sidney I. Roberts, died last Saturday. Although I am not from his generation, I had the pleasure to read one of his reference articles "The Agency Element of Permanent Establishment: The OECD Commentaries from the Civil Law View," published in Intertax (1993). This article was for me very important to understand the background and interaction between Article 5(5) and (6) of the OECD Model.

See Below the news reported by NYT:

Sidney I. Roberts, a lawyer whose voluminous work in tax law is considered an authoritative source on how United States taxes apply to people and businesses from other countries, died on Saturday at home in Manhattan. He was 91.
As early as the 1940's, Mr. Roberts recognized the growing importance of tax law and worked to clarify and classify its growing provisions, especially those that affected foreign corporations.
He edited or helped write at least 10 books on taxation and produced dozens of scholarly articles on the tax implications of dual residences, international stock holdings and other offshoots of a global economy. Roberts & Holland, which he helped start in 1957, became the country's largest law firm devoted to taxation.
In 1967, he and William C. Warren wrote their influential work, "U.S. Income Taxation of Foreign Corporations and Nonresident Aliens."
As a testament to his influence on the practice of international tax law, more than 30 tax specialists worldwide collaborated to produce "Essays on International Taxation: In Honor of Sidney I. Roberts" (Kluwer, 1993), a book published on the occasion of his 80th birthday.
Mr. Roberts was born in Brooklyn on Nov. 29, 1913. He received his bachelor's degree from City College and law degree from Harvard, where he was editor of the Harvard Law Review.
From 1938 to 1949, he practiced tax law at accounting firms. He then helped develop the tax practice at Roosevelt, Freidin & Littauer, a law firm. He retired from Roberts & Holland as a partner in 1986 and remained involved with the firm until 1994.

Monday, March 07, 2005

Only in the US?

Check this strange news: Woman Arrested Over 96 Cent Income Tax Bill.
That is what I call fierce tax collecting!

What type of integration? the discussion continues!

The common goal of integration is to alleviate the over ("double") taxation of corporate profits, consequently reducing the effective tax rates on returns on investments through corporations. Yariv Brauner (Arizona State) has posted an interesting paper called Integration in an Integrating World on SSRN. The article first identifies and elaborates on this contemporary trend of conceding integration and discusses the recent moves away from integration in some major economies, analyzing the reasons for such moves. Here is an abstract:

During the second half of the last century many countries gradually replaced their so-called classical corporate tax regimes, under which corporate earnings were taxed twice - once in the hands of the corporation, and again when distributed to corporate shareholders as dividends - with an integrated regime (imputation), which taxed such earnings only once. The driving force behind this trend was the expectation of significant efficiency gains. This clear and gradual trend has been abruptly reversed with the turn of the century. The phenomenon we call globalization, and in particular the proliferation of cross-border business and investment, has materially contributed to this dramatic sea change in the corporate tax world. The conventional wisdom was that imputation is unsustainable in a world whose markets integrate. This article argues that the abandonment of imputation is partly a consequence of our essentially non-cooperative world in terms of tax policy coordination. It concludes that imputation does not have to be the victim of globalization – it can be retained to the benefit of many countries, but only through enhanced international cooperation and coordination of tax policies.

Wednesday, March 02, 2005

My first post

I always wanted to have a blog.
Now I have one.
I always wanted to share my views.
Now I can share them.
I always wanted to write a little bit about everything.
Now I have the opportunity to do so.

Tax is not the only area of interest that I intend to cover. It is difficult to write about the scope and purpose of this project. At this stage, I only know that I will post interesting things that I come across during my work as a research associate at the IBFD in Amsterdam. Then we will see how it goes.