Principle of international taxation
International Tax
Lesson 1 – Taxation Principles
– Residence and source Corporations
Agenda
• Residence and Source as principles of taxation
• Special case 1: The Hong Kong case
• Example of tax planning based on the principle of source
• Special case 2: the USA case
Agenda
• Residence and Source as principles of taxation
• Special case 1: The Hong Kong case
• Example of tax planning based on the principle of source
• Special case 2: the USA case
Introduction
• Taxation for individuals
• Taxation for corporations
– We are going to focus in this lesson in taxation for corporations
– We will consider the structure parent company-subsidiary company in our analysis of withholding tax and double taxation
Residences vs. Source
There are two approaches to levy taxes on
Companies and individuals:
-
Residential approach (worldwide approach or national approach)
Territorial or source approach
a) Residential approach
- The key point is place of “residence” of the company: Government will levy taxes on the income earned by firms that are resident in the his country (i.e. “country of residence”), regardless of where the income has been earned (domestically or abroad). a) Residential approach
- Which income?
Company’s worldwide income is taxed in the “country of residence”.
b) Territorial or Source approach
- Focuses on “where the income has been earned” rather than on the “country of firm incorporation” - A country will include in its taxable base income arising within its jurisdiction regardless of the residence of the taxpayer,
i.e. residents and non-residents alike are taxed on income derived from the country
Which of these two principles
a) Residence approach
b) Territorial or source approach is more commonly used by nations?
Most of the countries adopt BOTH!
Residential approach &
Territorial or Source approach
Example: China: Article 3 Enterprise Income Tax:
“A resident enterprise
Lesson 1 – Taxation Principles
– Residence and source Corporations
Agenda
• Residence and Source as principles of taxation
• Special case 1: The Hong Kong case
• Example of tax planning based on the principle of source
• Special case 2: the USA case
Agenda
• Residence and Source as principles of taxation
• Special case 1: The Hong Kong case
• Example of tax planning based on the principle of source
• Special case 2: the USA case
Introduction
• Taxation for individuals
• Taxation for corporations
– We are going to focus in this lesson in taxation for corporations
– We will consider the structure parent company-subsidiary company in our analysis of withholding tax and double taxation
Residences vs. Source
There are two approaches to levy taxes on
Companies and individuals:
-
Residential approach (worldwide approach or national approach)
Territorial or source approach
a) Residential approach
- The key point is place of “residence” of the company: Government will levy taxes on the income earned by firms that are resident in the his country (i.e. “country of residence”), regardless of where the income has been earned (domestically or abroad). a) Residential approach
- Which income?
Company’s worldwide income is taxed in the “country of residence”.
b) Territorial or Source approach
- Focuses on “where the income has been earned” rather than on the “country of firm incorporation” - A country will include in its taxable base income arising within its jurisdiction regardless of the residence of the taxpayer,
i.e. residents and non-residents alike are taxed on income derived from the country
Which of these two principles
a) Residence approach
b) Territorial or source approach is more commonly used by nations?
Most of the countries adopt BOTH!
Residential approach &
Territorial or Source approach
Example: China: Article 3 Enterprise Income Tax:
“A resident enterprise