MA 613 Commentary And Explanation on Tax Treaties: OECD Article Assessment Answer
5. OECD Article, commentary and explain in own words
OCED Council has adopted recommendation where member countries of government need to conclude bilateral tax treaties with those countries in which they had not entered in conventions. Main purpose of tax treaties is for all state where they decide on various aspects that includes tax, non tax consideration along with tax policy to play an effective role in decision making (Helbling & Kalkum, 2018).
Main objectives of tax treaties is avoidance of two taxation system for reducing tax problems to perform cross border services, performing trade, doing investment along with existence of risks that comes from taxation and achieving outcomes in terms of doing interaction of two states taxes for proper trade as well as investment among those states (Jescheck, 2018). Provisions related with tax treaties focus on alleviating double taxation through allocation of taxing right taxes among two different states and accepting treaty provisions which consider restriction to right to tax elements of income that are taxable in other state. Whenever any states levis low or no taxes then other state need to consider about risks that are occurred at double taxation through tax treaty.
This is important for state to consider about whether such increase benefits or rise risks. When two states such as AUS-UK has entered into tax treaty then they should evaluate to that risk of double taxation which exist at situation of cross borders including residents (Phillips, 2018). When there are large numbers of cases for residence-source juridical then double taxation is eliminated with domestic provisions to get relief of it in better way in form of credit method or exemption that operate without taking need of treaties. The domestic provisions focus on forms of residence source juridical double taxation as they does not cover all types of double taxation in terms of differences in ruling of two states and states does not allow for any unilateral relief made for double taxation.
The consideration should be focus on tax policy of treaty where there is high risk in taxation that provide outcome from holding of taxes in different source state. The double taxation is not outcome of it as it does not hold any taxes in source exceed to normal profits at state of residence and create effect on cross border between investment as well as trade.
In addition to this, it is important to consider tax in order to enter into tax treaty that consider several features of it which enhance economic ties among countries like protection from discrimination offered by non discrimination rules mentioned at Article 24. This also consider certainty of tax treatment to payers who are liable to get benefits from treaty as well as gaining mutual agreement process, collective working in contract of moving to arbitration to resolve issues and disputes of tax among international borders.
6. Provide Example
Article 7 concern on taxation of business profits with respect to Contracting State to profits that are different under rule of other convention (Reimer, Schmid & Orell, 2018). This incorporates basic principle where business possess permanent development located at other state and does not make taxation of business profits by other state falling under such category of income. It is important to identify about which criteria should be used in attributing profits for permanent business and addressed large number of convention of taxes. According to practical experience, it is important to analyse problems related with double taxation as well as non taxation. Several changes have made in such articles to record taxation for profitable and non profitable business.
This provides certainty to payers of taxes in terms of guiding prices for large corporations as well as administrative of taxes (Zeigermann, 2018). It also indicates about addressing application of principle related with permanent business. Article 7 mainly focuses on formulation of approach that attribute in profits and modern business running at marketplace. For providing of more certainty, profits should be identified whether included in permanent or multinational business. This is used in negotiation of future treaties along with doing amendment in existing one. All previous commentary has been considered by business to make new revision in existing article related with profits. New version was adopted in year 2010 along with modification performed in adopted report.
For example, tax treaty conducted among country X and Y then there should be determination of bilateral holding of tax on dividends which is 10% where country X has to make payment of tax dividends which are following in country Y at 10% and vice-versa. It is regarded as reciprocal value as applied in both treaty countries.
On other side, Article 7 provide benefits in terms of business profits to enterprise and leads towards following of both permanent established business as well as existing firm running at market to gain benefits.