Magoosh GRE

International Tax Law – Exam Notes

| May 16, 2012 | 0 Comments

International treaties govern the tax regulations with regards to cross border transactions. The international obligation trumps the national regulations of the country concerned. Therefore there is much debate on whether international tax law is simply the body of treaties governing cross border transactions or if there is more to it than that.

The concept of treaties making up a body of law is a bizarre one and in a sea of bilateral agreements, there seems to be some norm that has formed.

Harmonized policies and drafting, extensive use of the Organization for Economic and Cooperative Development (OECD) model tax convention and commentaries, and mutually reinforcing interpretations, have made domestic applications of tax treaties the most promising source of a substantive international tax regime.


Economic Foundations of International Tax Law:

  1. Double Taxation:

The taxation of international transactions differs from the taxation of domestic economic activity primarily due to the complications that stem from the taxation of the same income by multiple governments. In the absence of double tax relief, the implications of multiple taxation are potentially quite severe, since national tax rates are high enough to eliminate, or at least greatly discourage, most international business activity if applied two or more times to the same income.

  1. Foreign Tax Credit:

Almost all countries tax income generated by economic activity that takes place within their borders. In addition, many countries – including the United States – tax the foreign incomes of their residents. In order to prevent double taxation of the foreign income of Americans, U.S. law permits taxpayers to claim foreign tax credits for income taxes (and related taxes) paid to foreign governments.

  1. Taxation & Tax Avoidance:

Having a wide variety of bilateral agreement across borders presents all kinds of opportunities for tax avoidance. A unified system of international tax regulations will avoid situations where tax can be avoided.

Capital Export Neutrality:

Capital export neutrality (CEN) is the doctrine that the return to capital should be taxed at the same total rate regardless of the location in which it is earned. If a home country tax system satisfies CEN, then a firm seeking to maximize after-tax returns has an incentive to locate investments in a way that maximizes pre-tax returns. This allocation of investment corresponds to global economic efficiency under certain circumstances.

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Category: Essay & Dissertation Samples, Finance Essay Examples

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