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Residence Taxation Of Multinational Companies Assignment
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The tie-breaker test in OECD MTC 2017
In the international environment, all the counties have the main objective to consider the collection of taxes in a fair manner from the different operations of multinational organizations. For instance, in the aspect of the Australian environment, the essential sources of income are associated with the income sources of non-residents as well as sources of income of residents from worldwide. The international system of taxation generates an essential way of imposing the right of taxes from different business activities where it is the main aspect of consideration to avoid the problem regarding dual taxation that is mainly caused by the conflicts of residence source as well as residence-residence (Cooper and Nguyen, 2020). In this dimension, several countries have negotiated with the tax treaties for removing the issue of double taxation and in this negotiation many countries have followed the tax convention model of OECD for the treaties of bilateral tax.
Residence as well as the sources is the main area of consideration of tax imposition aspects of a country. Add to that, based on the principle of residence, an individual or a resident is liable to pay tax to his or her government for worldwide incomes and the non-resident are only associated with paying taxes on domestic income sources. Therefore it can be said that the principle regarding the sources is associated with paying taxes by the resident as well as non-resident to a country.
POEM as the Tie Breaker of OECD
A country mainly relies on the residence taxation, tie-breaker test, “foreign tax credit system and others' ' while negotiating with tax treaties regarding double taxation. In this dimension, the rule of tie breaker has been developed for effectively dealing with the issue regarding double taxation that is mainly associated with the conflict of “residence-residence”. In addition, the conflict of “residence-residence” occurs while two different states impose the same tax on a person showing that being resident must be paid tax based on domestic law. Add to that, in such circumstances, a person is liable to pay tax to both of the states where the model of OECD largely considered this test to solve the conflict. In this dimension, the test of tiebreaker used in the tax convention model of OECD is POEM - “place of effective management” (Devereux et al. 2020). In this model, article 4 represents that POEM - “place of effective management” is associated with such a place commercial decisions as well as essential management decisions are made by the enterprises for determining the required control on their functional activities. Therefore, it can be said in the aspect of a multinational organization that POEM - “place of effective management” is the place where the director or the senior management makes decisions. In this portion, an organization may be involved with different management places but it can have a single place regarding effective management (Gavurova et al. 2020). In this dimension, it can be identified that POEM is related with decision making of a director in a state.
Factors of determining resident for multinational companies
In the context of paying tax, it has been essentially accepted that it is required to pay tax by an individual based on the residence because of the economic ties, familial as well social ties to the residence place. In addition, in the context of multinational organization, there are no social as well as family deaths but they remain involved with the owners, decision makers, employees, workers. Add to that, the multinational organizations also use public goods, public infrastructure as well as gain benefits and they also cause the environmental impact. Due to remaining involved with the economic as well as political environment, there are some responsibilities of organizations of paying taxes but there is no any kind of tax of increased environmental impacts by them.
In this dimension, this study is related to comparing the enterprises to the individuals based on the framework of the article 4(2) in the middle of the tax convention of OECD that is associated with the provision of tie breaker. Add to that, an effective application of the framework regarding the article 4(2), it can determine several factor regarding an individual’s residence status that is associated with both the resident “the contracting states to a tax treaty”.
The model of OECD - “organization of economic co-operation and development” regarding tax convention that is associated with the objective of relieving the double taxation aspect in the international environment. In addition, the concept of double taxation refers to the imposition of two or more than two same kinds of taxes upon some taxpayers. In this aspect, it can be observed from the article 4(2) of OECD model that the term resident is related with the domestic law references regarding two states where it can be said that an organization will be the resident of both of the states (Joppe, 2019). In this portion, article 4(2) as well as the article 4(3) is involved with containing the clauses of tie breaker to make an allocation of the resident “one of the two states” for convention purpose. In the context of an individual, the rule of tiebreaker is associated with different indicators regarding personal attainment towards the state but in the context of the organization the test of tiebreaker is related to the effective management place.
In this portion, it is considered a permanent home for evaluating the dimensions of the tie breaker test.
Considering on permanent home for deter terming the resident
According to the first limb of the framework of the article 4(2), it can be identified that it is related with setting tie breaker task of an individual. In addition, in this aspect it is essential that an individual should be the resident of a state where he or she has a “permanent home” (Collett, 2003). Based on the tax convention model of OECD of article 4, any state where an individual’s permanent home is situated is possessed by him for the permanent use. On the other hand, it can be said to be the permanent home of a multinational organization to its headquarters. Based on the rule of tie breaker of OECD, the POEM - “place of effective management” is associated with the decision making place of an organization therefore it can be said that based on headquarter; it can identify the resident of a multinational organization.
Considering “central of vital interests”
Apart from that, it can be considered as “central of vital interest” for determining the resident. Based on the article 4 (2) of second limbs of the tax convention model of OECD, it will be considered on the economic as well as personal relationships in the cases of a person associated with two permanent homes in two different states (Oguttu, 2018). In this dimension article 4 (2)the rule regarding testing tiebreak of OECD lists several crucial factors that can be focused including - occupation of an individual, family and the social relationship, culture along with political activities, business place, location regarding possessions and others. In the case of an enterprise, it does not remain associated with any personal or family relationship but it can have legal, political and economic links (Lyon and McBride, 2018). Apart from that, the existence of a multinational organization is related with the law related to the company such as law regarding limited liability, aspect of merger and the acquisition, law of intellectual property and others. Therefore, it can be said that it can determine the residence of a company based on the economic, legal as well as political links.
Test of habitual abode
Furthermore, Article 4 of the third limb of the tax convention model of OECD also considers the aspect of “habitual abode” in the case of failing the test of permanent home and “central of vital interests”. In the context of individual level, this test is related to considering the pattern of an individual where its activities are involved with long term. In the context of an individual associated with several contracting states, it is required to consider the state where an individual’s activities are long term. In the case of a multinational organization, it can be determined that residents of the company by considering its large interaction with some countries on a regular basis.
Furthermore, in determining the resident, the major testing of OECD is considering the nationality of birth of an individual and the nationality of a company’s incorporation. According to testing under OECD, nationality is one of the greatest tests for understanding the residence of a company. In all the testing, there can be problems found regarding interaction with some countries, permanent home, relationship, nationality, shifting to different states and others (Paramati and Roca, 2019). In the context of nationality testing or testing the incorporation of a business in a state can have issues regarding increasing companies' engagement with other states or making subsidiaries to other countries and others. Add to that, the new test of tie break can be essential in the context of focusing towards the tests of “habitual abode” as well as “central of vital interests”. Furthermore, it can be said that all the tests under the article 4 of OECD model are essential and they should be applied based on the condition of a company.
References
Journals
Collett, M., 2003. Developing a new test of fiscal residence for companies. UNSWLJ, 26, p.639.
Cooper, M. and Nguyen, Q.T., 2020. Multinational enterprises and corporate tax planning: A review of literature and suggestions for a future research agenda. International Business Review, 29(3), p.101692.
Devereux, M.P., Bares, F., Clifford, S., Freedman, J., Güçeri, ?., McCarthy, M., Simmler, M. and Vella, J., 2020. The OECD Global Anti-Base Erosion Proposal. PwC report, Oxford University Centre for Business Taxation, January.
Gavurova, B., Ivankova, V., Rigelsky, M. and P?ívarová, M., 2020. Relations Between Tourism Spending and Global Competitiveness–an Empirical Study in Developed OECD Countries: Gavurova, B., Ivankova, V., Rigelsky, M., P?ívarová, M.(2020). Relations Between Tourism Spending and Global Competitiveness–an Empirical Study in Developed OECD Countries. Journal of Tourism and Services, 21 (11), 38-54. Journal of Tourism and Services, 11(21), pp.38-54.
Joppe, M., 2019. 17. The roles of policy, planning and governance in preventing and managing overtourism. Overtourism, pp.250-261.
Lips, W., 2020. The EU Commission’s digital tax proposals and its cross-platform impact in the EU and the OECD. Journal of European Integration, 42(7), pp.975-990.
Lyon, A.B. and McBride, W.A., 2018. Assessing US Global Tax Competitiveness after Tax Reform. National Tax Journal, 71(4), pp.751-788.
Oguttu, A.W., 2018. Should Developing Countries Sign the OECD Multilateral Instrument to Address Treaty-Related Base Erosion and Profit Shifting Measures?. CGD Policy Paper. Washington, DC: Center for Global Development. https://www. cgdev. org/publication/should-developingcountries-sign-oecd-multilateral-instrument-address-treaty-related.
Paramati, S.R. and Roca, E., 2019. Does tourism drive house prices in the OECD economies? Evidence from augmented mean group estimator. Tourism Management, 74, pp.392-395.
Popescu, C.R.G., 2020. Sustainability Assessment: Does the OECD/G20 Inclusive Framework for BEPS (Base Erosion and Profit Shifting Project) Put an End to Disputes Over The Recognition and Measurement of Intellectual Capital?. Sustainability, 12(23), p.10004.
