Module IV·Article I·~1 min read
International Tax Principles and Double Taxation Treaties (DTT)
International Taxation and BEPS
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Principles of International Taxation
Residence (worldwide taxation): taxation based on the place of residence with respect to worldwide income.
Source (source taxation): taxation at the source of income, regardless of the recipient's residence.
Most countries combine both principles, which leads to double taxation. DTTs eliminate or reduce double taxation by:
- allocating taxation rights between countries
- reducing withholding tax
- mechanisms for crediting taxes paid abroad
Typical DTT Models
OECD Model: emphasis on the country of residence. Advantage — for developed capital-exporting countries.
UN Model: emphasis on the country of source. Advantage — for developing capital-importing countries.
Permanent Establishment (PE)
PE — a form of presence of a foreign company in another country, where the country has the right to tax the relevant profit. Signs of PE: a permanent place of business (office, factory, warehouse); a dependent agent (authorized to conclude contracts on behalf of the company).
Digital Economy Challenge: large digital companies (Google, Facebook) are present in markets without a physical PE. This has caused large-scale BEPS.
Practical Assignment
A German company hires a Russian "sales manager" who negotiates and concludes contracts on behalf of the German company. There is no Russian legal entity. (1) Is there a risk of recognition of PE in Russia? (2) What are the tax consequences? (3) How to structure to avoid PE?
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