June 2016  
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Issue No. 2 - 2016 of the World Tax Journal is now available online.

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Number 2 - 2016 contains the following:

The 21st Century Multilateralism in International Taxation: The Emperor’s New Clothes?

Ricardo García Antón

This contribution attempts to shed light on the concept of multilateralism in international taxation. Rather than a shift from bilateralism to multilateralism, the author will argue that unilateralism, bilateralism and multilateralism continuously overlap in this field. This flawed narrative in relation to the shift may allow us to think that the BEPS Project and global transparency in exchanges of information are leading to a global tax law: global decision-making and better solutions for developed as well as for non-developed countries. Instead, the author will claim that the current multilateral frameworks are premised on the benefits principle, which reinforces the division between developed and non-developed countries. The increase in global inequalities and poverty have led the author to propose a different multilateral framework on international taxation based on the idea of distributive justice. In other words, a multilateral framework that moves away from the dichotomy of source v. residence taxation to embrace solidarity is both desirable and feasible. Finally, the article will acknowledge the fact that regional integration processes, defined as “thick multilateralism”, already encapsulate harmonization mechanisms and an idea of justice among the EU Member States that strengthen the struggle against the existing inequalities and asymmetries.

Taxing Investments in the Asia-Pacific Region: The Importance of Cross-Border Taxation and Fiscal Incentives

Katharina Nicolay and Verena Wiedemann

This article investigates the taxation of investments in the Asia-Pacific region. The authors’ analysis is based on the methodology of Devereux and Griffith (1999 and 2003) for determining effective average tax rates. This approach allows us to account for important domestic and international tax regulations. The results presented in this article show that for the tax law of 2014, the overall dispersion of effective tax burdens in the Asia-Pacific region ranges from 10.6% in Hong Kong to 40.4% in India for domestic investments (an overall average of 23.4%). In 8 out of 19 jurisdictions covered, investments are, however, effectively taxed at a rate between 20% and 25%. For foreign direct investment, international tax law regulations have a significant impact on the overall tax burden. In any of the Asia-Pacific jurisdictions, foreign direct investments by a Singaporean or a German parent company are on average taxed at 29.2% and at 32.8% in the case of profit repatriation to the United States. Meanwhile, tax incentives for the stimulation of private investment reduce the effective average tax rate by 8.6 percentage points on average. Fiscal incentives targeted at investments in the high-technology sector or the development of specific geographic areas result in the lowest effective tax burdens.

Sovereign Immunity and Source State Taxation of Sovereign Wealth Funds: Is It Time to Re-Evaluate?

Richard Snoeij

Cross-border investments of states have rapidly increased over the last few years and are, more often than not, structured through special purpose investment funds or arrangements, known as sovereign wealth funds (SWFs). The total value of assets under the management of SWFs is currently estimated at USD 7.1 trillion (as at March 2016). In relation to states, their subdivisions and their wholly owned entities, the OECD Commentary mentions the customary international law principle of sovereign immunity. According to this principle, a foreign sovereign state can be held immune from the jurisdiction of the courts of another sovereign state in civil proceedings (jurisdictional immunity), and this principle may also apply to state-owned entities. A number of states, including Australia, Canada, the United Kingdom and the United States, apply the sovereign immunity principle to taxation as well. SWFs might also benefit from these tax immunities. The preferential tax treatment over other (private) investors to which a tax immunity regime potentially gives rise has historically been explained (or justified) by reference to the sovereign immunity principle as a principle of customary international law. However, an examination of the tax immunity regimes and the rules on jurisdictional immunity in all four states strongly suggests that the tax exemptions accorded to foreign sovereigns and SWFs are not (or, at least, are no longer) truly motivated by sovereign immunity. As a result, these states, and other states in which a comparable situation exists, would need to re-evaluate their existing tax immunity framework.

Multinational Firm Theory and International Tax Law: Seeking Coherence

Romero J.S. Tavares

This study provides an interdisciplinary analysis of firm theory and international tax law, applied within a framework of hypothetical illustrations of prototypical multinational enterprises. The study finds that the construct and interpretation of different norms of international tax law correlate over time by different and partial views of the functioning of multinational enterprises and of their value drivers. Accordingly, international tax law is incoherent or ineffective in key aspects of its design, interpretation and enforcement, such as in the recognition of permanent establishments under articles 5(1), 5(5) and 5(7) of the OECD Model, the attribution of profits to permanent establishments under article 7, and the interpretation of the arm’s length principle under article 9. The “value creation” approach promoted through the G20/OECD BEPS Project, as well as the “Authorised OECD Approach” for the attribution of profits to permanent establishments under article 7, seem to approximate the interpretation of treaty law to modern firm theories, albeit inconsistently and still requiring improvement. Other fundamental rules for the allocation of taxing rights, however, remain unaltered and dated, and/or incoherently interpreted. This study supports the consistent use of modern firm theories and the convergence of international tax norms to a common and coherent approach.

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