Tax Law Design and Drafting (volume 2; International Monetary Fund: 1998; Victor Thuronyi, ed.) Chapter 18, International Aspects of Income Tax - 1 - 18 International Aspects of Income Tax Richard J. Vann 1 In the long run, the business unit or source will yield more revenue to the public treasury than the individual; and the place where the income is earned will derive larger revenues than the jurisdiction of the person. —T.S. Adams I. Introduction This chapter examines the details of international income tax as an aid to understanding and drafting the parts of the income tax law dealing with international issues. Given the large literature on basic policy issues in international taxation, I deal with general policy matters only in passing. 2 The chapter accepts the general parameters of international income tax law as it is now established without questioning whether the structure provides the best solution to international tax problems. 3 Within that structure, it seeks to provide a detailed discussion of policy, design, and drafting issues. Although the chapter draws on the experience of industrial countries with international taxation, the special concerns of developing and transition countries are emphasized throughout. The major difference between international income tax law and the remainder of the income tax lies in the pervasive importance of treaties. 4 Most countries have entered into one or more bilateral tax treaties that supplement and sometimes replace the income tax law, but only as regards the parties to the tax treaty in question. This chapter gives considerable 1 Note: The author is grateful for comments from Reuven Avi-Yonah, Michael McIntyre and Victor Thuronyi. 2 The usual starting point is Richard Musgrave, United States Taxation of Foreign Investment Income (1969); among more recent works see, for example, Assaf Razin & Joel Slemrod eds., Taxation in the Global Economy (1990) and Organization for Economic Cooperation and Development (OECD), Taxing Profits in a Global Economy (1991). The OECD Committee on Fiscal Affairs Working Party No. 2 on Tax Policy and Statistics is currently conducting a project on the policy of international taxation. 3 A good deal has been written in recent years on the need for change in the international tax system, for example, Richard Vann, A Model Tax Treaty for the Asian-Pacific Region, 45 Bulletin for International Fiscal Documentation 99, 151 (1991); Sol Picciotto, International Business Taxation (1992); Vito Tanzi, Taxation in an Integrating World (1995). 4 See vol. 1 at 31–33 for a general discussion of the relevance of treaties to tax law.
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