Evening star., 1939-02-26
Tax Conventions Forge Link
OF International Cooperation
Agreements Are Designed to Eliminate Multiple
Taxation, Safeguard Revenues and
Stimulate International Trade
By Harold B. Rogers
By Harold B. Rogers.

this revenue. Mr.. King recently par
ticipated in a discussion of the subject
at meeting of the Committee on Double
Income Taxation, Section of Interna-
tional and Comparative Law, of the
American Bar Association
The principles involved usually relate
to the elimination of double taxation ex-
change of tax information and co-opera-
ton in tax enforcement, he explains.
Aid Flow of Trade.
Double taxation. arises in variety
of ways" said Mr.. King. One COM
mon way is to have different rules for
income ALLEGATION employed by different
countries. A taxpayer operating in two
countries with different rules may find
that he is being taxed on more than 100
per cent of his income. 1t also arises
through the resident as opposed to the
citizenship test of taxation. The tax
payer may meet both tests, and thereby
be taxed twice on the same income.
Another common cause is the source sys-
tenn of taxation as opposed to taxation
where the recipient of the income re-
sides, since the same income may be sub
Jected to both systems
Other related problems of major i'm
portance are the tendencies on the part
of some countries to look beyond boun-
Diary lines and tax eXtraterritorially, and
to employ methods of discriminatory tax
alton. There is also the somewhat natu-
raj tendency to bear down heavily on
aliens beyond the confines of the country
and at times even the resident alien.
Tax conventions get into all of these
various questions, and in the process
promote the flow of trade and commerce.
Taxes May Be Unfair.
'Of primary importance is the Gov
ernment's revenue. This side really
blends with the other side Governments
may tax international business unfairly
and the taxpayer begins to shift profits
artifcially
Governments may hesitate to reach
what might otherwise appear to be
equitable tax results. Although tax con-
ventionS do not cure all the interna-
tional difficulties. they are thought by
many countries to be a step in the right
direction by bringing all this together
and reducing as nearly as possible the
international system down to a do
mestic system.
In eliminating double taxation the
States feel definitely that part of the
process should be to safeguard their own
revenues. Provisions of general con-
ventions along this line may be illus
trated somewhat as follows:
IF the States agree on a plan for
taxing only once such items as royalties,
dividends or interest flowing from one
State to the other. or of dividing this in
come between the two States for the
purpose Of taxation. it seems entirely
logical and proper that they should pro-
vide for administrative cooperation to
the end that the taxing State or States
will have complete information concern
ing the items in question. If the con-
tracing States agree upon say, the resi-
dence theory Of taxation, and resident
in one State receives income from sources
within the other, it becomes important
that the taxing State be furnished in
formation by the State of source with
respect to the income involved. Where
the business enterprise of one State
maintains a permanent establishment
in the other State and the two States
agree upon rules for equitable ALLEGATION
of the income, it is but natural and
proper that they should insist that the
re ha Ia, to
both States
Revenue Safeguarded.
"a common provision in tax conven-
tions is that directed at elimination of
double taxation or extra territorial taxes
as affecting the parent company situated
in one state and the subsidiary company
situated in another State. Under this
plan an accompanying provision is nor
mally found granting power to each
State TO rectify accounts where, because
of the close relationship, it is found that
the companies have not placed their ac-
counts on an arms length basis The
problem being primarily a factual one
it is but natural that provision should
be made so that the accounts will ne
open to both States.
In the process of eliminating inter-
national double taxation, the accom-
panying plan of safeguarding the rev.
enue comprehends not only the exchange
of tax information appropriate to the
correct assessment of the tax, but mutual
cooperation in collection of the tax
This is accomplished by provisions to the
effect that one State having a proposed
tax bill against a taxpayer whose prop
erty is situated in the other State may
ask the other State to conserve the prop
erty by filing notice of lien or by en-
ployment OF other appropriate process
and, if the claim is terminated in favor
of the applying State, that the State to
which application is made collect the
taxes due and pay them over to the
applying State. Provisions to this end
are quite common in conventions of the
broader type.
. IN matters of domestic income taxa
ton the States are in position to en-
ploy adequate means (although the
means employed may differ in the as
sessment and collection of the taxes. Ir
| general. the plan in tax conventions Of
the broader type is to give the States
equivalent protection in the interna'
tional field of taxation"
Full Gas SuDply REQUIRED