Critical Appraisal of Double Taxation

8/8/2019 Critical Appraisal of Double Taxation

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Double Taxation

Imposition of tax twice in one year on

same Income is called Double

Taxation.


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Why this Issue arises ?

MR.Babar Deputy Commissioner

FBR Large Tax payer Unit,

Revenue Division

This is due to cross border

investment and due to inter-country transactions


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Kinds of Taxations

1. Source based taxation

The country which provides you

opportunity to generate income fromsource.

2. Residence based taxation

If you are resident of a country which

provides you public services andfacilities.


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How Double Taxation can happen

1. Taxation by two or more countries

of the same income

2. Taxation of dividend income

3. In the United States a person

holding more then one domicile


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Between Two Countries

In import and export


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Dividend


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Domicile Case

In US if a person having two states

domicile

On his death

Property will be taxed by two states


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Lets try to solve this issue

1. Pure Source base taxation

2. Pure Residence base taxation

Remember this is not the right solution


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Assumption

Resident

Is the person/Company that born in

one country then he will be the

resident of that specific country.

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Why Pure Residence Base

Taxation can not exist?

1. Cant collect taxes from foreigners

doing business within their

economy

2. Reduce revenues in poor developing countries.

3. Much easier to evade tax


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Why Pure Source Base Taxation

cant exist?

1. US Company in Pakistan will give

Taxes to Pakistan

2. So Revenues of Poor DevelopingCountries will be increased.

3. Taxes rate will be lowered down to

much


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If Pure Source Base Taxation

Zulfiqar Ali (Director, Board of

Investment ,

New Muslim Town )

As our imports more then exports

so on imported goods the taxes

are already paid in the home on

Source, that is why we can not tax

it in Pakistan.


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Avoidance of Double Taxation in

Joint Stock Company in US

Avoid the corporate form of doing

business

Go to LLCs (Limited Liability

Companies)

It exist in USA UK and most

developed countries


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Pakistan Perspective

Raza Munawar (Additional

Commissioner of FBR, Large tax

payer Unit, Revenue Division.)

It is just misconception that the

company income taxed twice, it is

actually two entities who are

taxed.


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Inter-Country Double Taxation

Solution

Agreement/treaties between the countries

for Double taxation

What is the Treaty?

An agreement under international laws.


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Role of the UN

in Treaties

1. Registered with the UN

2. To prevent the proliferation of

secret treaties

3. Amendments to these treaties

4. To prevent the International

investors against double taxation


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Models of Double taxation

Avoidance Treaties

We have many models but mostaccepted are

OECD model

UN model


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OECD Model Treaties

Normally tax a person on

residential status

(page4 DTA vol. 1)

Two developed or developing anddeveloped country

Pakistan most treaties are

registered with OECD


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UN Model Treaties

1. Towards the interest of developing

countries

2. It encourages the source basetaxation

3. These are very few


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How The OECD Model TreatiesFormed


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Pakistan Double Taxation

agreements/ Treaties

1. Full Scope Treaties

2. Limited Purpose Treaties


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Full Scope Treaties

That treaties which cover almost

whole of the system of the taxation

with the other countryLimited Purpose Treaties

Treaties in which we specifically

mention special area of our

agreement. e.g. shipping, airlines

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Full Scope Treaties

1 Bangladesh 6 Singapore

2 China 7 USA

3 Iran 8 Thailand

4 Germany 9 United Kingdom

5 Japan 1

0

Turkey

Pakistan has double taxation treatieswith 52 countries some of them arementioned below:-


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Limited Purpose Agreement

1 SaudiArabia (Income

fromAirlines).

3 Iran (Income from

airlines)

Iran (Income from

Shipping)

2 India (Income from

Airlines)


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Who can have the access to

these Treaties?

Both contracting states residents


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If a person is Resident of two

states

Pakistan due to 183 days

USA due to the citizen

A USA citizen resides in Pakistan

for more then 183 days then he

will be resident of both Pakistan

and USA.


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The solution is

1. Permanent home

2. Economic relations are closer.

3. Habits match


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1. http://en.wikipedia.org/wiki/Double_taxation

2. MR.Babar Deputy Commissioner FBRLarge Tax payer Unit, Revenue Division

3. http://www.taxjustice.net/cms/upload/pdf/Source_and_residence_taxation_-_SEP-2005.pdf

4. Zulfiqar Ali (Director, Board ofInvestment , New Muslim Town )


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5. http://en.wikipedia.org/wiki/Limited_liabili

ty_company

6. Raza Munawar (Additional

Commissioner of FBR, Large tax payerUnit, Revenue Division.)

7. http://unpan1.un.org/intradoc/groups/pub

lic/documents/un/unpan002084.pdf

8. http://www.cbr.gov.pk/newdt/TaxTreaties

/Double%20Taxation/Defualt.asp#1


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9. http://answers.oneindia.in/index.php?cat

egory=52

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Critical Appraisal of Double Taxation