MORE TAX ACADEMY

CHARTERED INSTITUTE OF TAXATION [GHANA]

MOCK EXAMINATION

FEBRUARY 2018 PREPARATORY EXAMS

FINAL 1 PAPER 9

INTERNATIONAL TAXATION

TIME ALLOWED

–2 HOURS

ATTEMPT ALL QUESTIONS

Credit will be given for reference to decided cases from Ghana and other jurisdictions;
relevant bilateral and multilateral tax conventions Ghana has with other countries; the OECD
Commentary to the OECD Model Tax Convention and the UN Model Tax Convention to
support your answers.

Lecturer: Timore Francis Boi

1
QUESTION 1

a) “Except for the United States, every major developed nation now operates a
territorial system of taxation.” You are required to discuss this statement.
[5 marks]

b) You are required to explore and analyses state law and practice when
determining the residence of individuals, including ‘facts and circumstances’
tests. [5 marks]

c) Leo is a qualified Accountant. He is tax resident at all material times in Ghana.

Ghana has a double taxation convention with UK (“the DTC”) that corresponds to
the OECD Model Convention in all material ways. During a particular year, Leo
undertook some accountancy work in UK as an employee.

UK’s domestic income tax law provides that tax on business income is levied on the
“profits of a trade, profession or investment” (Income Tax Act 2015, section 1). This
law also provides that the performance of the duties of employment as an
Accountancy constitute “the carrying on of a trade” in UK for income tax purposes
(Income Tax Act 2015, section 2). Under section 2, Leo’s type of work is deemed to
be a business activity for income tax purposes, with the consequence that Leo is taxed
as a self-employed person irrespective of whether he undertakes those activities as
an employee or as a self-employed person. This kind of deeming is not unusual in
UK, and applies to a number of ‘employment’ activities.

The Tax Authorities in UK regards the income from his Accountancy activities as
falling within Article 14 (Dependent Personal Services) of the DTC, and subject to
income tax in UK, on the basis that Leo is an employee, irrespective of the deeming
provision contained in section 2 of the Income Tax Act 2015. However, Leo believes
that his Accountancy income constitutes business profits, which fall within Article 7
(Business Profits) of the DTC and are exempt from UK income tax due to the fact
that Leo did not have a permanent establishment in UK (see below).

Other information of potential relevance, that can be treated as settled between

the parties, is as follows:

Leo did not have a permanent establishment in UK within the meaning of

Article 5 of the DTC during the time at issue.

UK changed its domestic law in relation to section 2 of the Income Tax Act
2015 after the conclusion of the DTC. It is unclear to all concerned in what manner
Ghana would tax Leo’s income from his work in UK, if at all.

You are required to advise Leo of his likely income tax position in relation to UK
[12 marks]

Total [22 marks]

2
QUESTION 2

a) The interpretation of international treaties such as Double Taxation Agreements

is specifically governed by the Vienna Convention on the Law of Treaties of
23rd May, 1969. The Convention provides for the status of international
agreements in relation to domestic laws. Article 31 (1) of the Convention
contains three basic principles that provide the framework for interpreting
international treaties such as Double Taxation Agreements.
Required
I. What is the status of Double Taxation Agreements that Ghana has with other
countries in relation to the Act 896 and the Revenue Administration Act, Act
915? [6 marks]
II. State and explain the three basic principles within which international treaties
such as Double Taxation Agreements should be interpreted? [8 marks]

b) Evaluate the effect of the non discrimination provision contained in Article 24 of

the OECD Model Tax Convention on Income and Capital, which is adopted in all
the Double Tax Agreements Ghana entered into with other countries. [4 marks]
c) As contained in all the Double Taxation Agreement Ghana entered into with
some countries, Article 25 of the Model Convention on Income and Capital
provides for Mutual Agreement Procedure (MAP). How is the Mutual
Agreement Procedure (MAP) put into effect in practice? (4 marks)
Total [22 marks]

QUESTION 3

Timore is an entrepreneur, resident in the UK, who is considering moving with his family
to Ghana. He owns the entire share capital of MTN Telecom Ltd, the holding company
of a large group engaged in the Telecom industry. MTN Telecom Ltd is incorporated in
the British Virgin Islands, where its nominee directors hold quarterly directors’ meetings.

MTN Telecom Ltd holds its group through a complex chain of intermediary holding
companies, some of which are incorporated in countries with which Ghana has entered
into tax treaties containing the OECD standard residency tie-breaker clause.

The intermediate holding companies have little substance in their respective countries of
incorporation; however, the group’s main operating company is located in Hamburg,
Germany, where it has a substantial presence including a large, purpose-built office where
its key personal are located.
The group includes other significant subsidiaries, located in the Ghana, all with strong
local boards.

Timore acknowledges that the group is effectively controlled out of MTN Hamburg Ltd,
where its directors meet regularly to determine group policy, including finance and major
investment and disinvestment decisions. Timore is Board Chairman of various group
companies, including MTN Telecom Ltd, and takes an active role in the group’s key
strategic management decisions and contract negotiations.
A friend of Timore has cautioned him against making the move Ghana, explaining that,
while Ghana might offer certain advantages to non-domiciled individuals, there is a
significant risk regarding corporate residence. Timore is sceptical of his friend’s advice,
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as he only intends to remain in the Ghana for three-to-five years and has no previous
connections with Ghana.

You are required to explain to Timore the implications, should he become Ghanaian-
resident, for the corporate residence status of:

1) MTN Telecom Ltd. (10 marks)

2) The intermediary holding companies. (5 marks)
3) MTN Hamburg. (5 marks)
Your explanation should also include a summary of the determinants of corporate
residency, including any case law, and advice regarding any steps which may be put in
place to preserve the non-Ghanaian residence status of those companies.

Total [20 marks]

Question 4
a) Explain the merits of relieving double taxation by means of the exemption and
credit methods for taxpayers and tax jurisdictions. (8 marks)

b) Differentiate between economic double taxation and judical double taxation. Give
an example of each of them [4 markes]

c) What are the objectives of a modern double tax agreements? (4 marks)

Total [16 marks]
Question 5
The arm’s length principle enunciated under chapter 1 of the OECD transfer pricing
guidelines provides fundamental guidelines in modern transfer pricing principles in the
world today.

You are a newly qualified tax expert in More Tax Consulting and your manager has asked
you to prepare a training pack to the transfer pricing team which you are the leader to help
build the team’s capacity in transfer pricing dispute between the GRA and your golden
client Vodafone Ghana Ltd.

You are required to explain to them

a) What transfer pricing is
b) What the arm’s length principle is in line with the OECD guidelines
c) Any alternative methods to the arm’s length principles
d) Three arguments for and against the arm’s length principles
e) The guiding principles in applying the arm’s length principles in resolving the
dispute in the Vodafone-GRA dispute

Total [20 marks]

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 MARKING SCHEME

Q1a
Comment:

This question tested students understanding of a country’s jurisdiction to taxation in

international tax. In answering this question, it is expected that students will be able to
demonstrate their understanding of the difference between worldwide taxation and
territorial taxation. Indeed, providing a definition of both terms would be optimal. Students
might want to consider listing the advantages and/or the disadvantages of moving away
from a worldwide system towards a territorial system. For example, at least in theory, a
move towards territorial system in relation to corporate income should see a benefit to
capital importing states, particularly if they offer a competitive tax rate, as only the source
country would have jurisdiction to tax profits deemed to arise there. Corporations will, in
effect, become more sensitive to host state tax rates.

Answer Plan

The world has been seeing a trend, whereby states have been shifting away from worldwide
taxation towards territorial taxation. Countries other than the US have now adopted territorial
taxation (or a partial version) for active business income. However, the US is not alone in taxing
worldwide income.

A pure version of territorial taxation imposes tax on active business income earned by
companies outside their country of residence only in the source or host country.

Worldwide taxation is a system under which companies deemed “resident” in a state are taxable
by that state on their income from all over the world, normally with offset either by deduction or
credit for taxes paid to source states on the same income.

There is perceived compliance burden of the worldwide system some countries have moved to a
modified version of the territorial system. Worldwide taxation is unduly complex and burdensome,
deters repatriation of income, and encourages foreign incorporation, particularly given its
problems with foreign tax credits.

Reasons in favor of moving towards territorial taxation includes the following

1. it results in alignment with global trading partners tax system

2. The worldwide tax system violates the benefit principle of taxation.
3. The compliance cost of the worldwide system is excessively high relative to companies’
foreign activities and the revenue which is raised from taxing foreign-source income.
4. A high corporate tax rate together with a worldwide system makes it cheaper for
companies to take on debt rather than use their own profits to fund their growth.
5. The current system dissuades global companies from headquartering in the jurisdiction
that operates a worldwide system.

Q1b
Comment

When answering this question, students should be careful to distinguish state practice from
the tie- breaker test found in Article 4 of the OECD Model Convention. Students might want to
also discuss the cessation of residence. Chapter 3 of the Tax Primer provides a good reference
point on jurisdiction to tax. Please refer to it and read more on this.

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 Answer Plan

Generally, personal taxing jurisdiction over individuals is typically asserted on the

basis of residence. There are a number of options when determining the tax

residence of an individual:

i. non-tax concepts such as citizenship or nationality – residence is

considered by some to imply a closer association than citizenship

between the taxpayer and the use of services provided by the taxing

jurisdiction

ii. a day count test – e.g. where the individual spends an aggregate of

183 days in the relevant jurisdiction over a 12-month period; or

iii. a ‘facts and circumstances’ test – e.g. having a permanent place of abode either in

the relevant jurisdiction or overseas).

These tests are often used in conjunction, and it is not uncommon for one of the tests to be the

primary test. The determination of residence more often than not rests on a ‘facts and

circumstances’ test, which looks at the various social and economic connections the individual

has to the taxing jurisdiction, as well as the individual’s intent with regard to his stay and his

connections to other jurisdictions. This general test is frequently supplemented with a

mechanical test based on the number of days of presence in the jurisdiction – a day count test.

Tax residence may or may not be connected with residence in terms of immigration status. In

relation to ‘facts and circumstances’ tests, the issue often revolves around whether the facts

and circumstances relate to a particular dwelling, a particular location or the country more

generally. If it is in relation to the particular dwelling, then the issue becomes whether that

dwelling constitutes an individual’s home (be it, for example, an investment property or

spouse’s property). If it is in relation to the country more generally, then the issue becomes

whether the person has enduring personal and economic connections with that state, which may

be influenced by the presence of a ‘home’ in a particular locality. Home need not be synonymous

with the ownership of an interest in a house or property.

Q1c
Comment:
The focus of the question is whether the domestic law of UK, especially the deeming provision,
means that Leo’s income falls within art 7 rather than art 14 of the DTC. Arguably, the best
approach to answering this is to look at how the treaty terms in arts 7 and 14 are to be defined to
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assess whether Leo’s income falls under one or the other. Some analysis should also be made in
relation to the change in domestic law after the conclusion of the DTC.

Answer Plan

The starting point for the interpretation of any international treaty is art 31 of the VCLT and
Article 3(2) of the Ghana –UK DTC mandates that any term not defined in the DTC 'shall' have
the meaning that it has under the applicable tax laws of the contracting state applying the DTC
(i.e. UK). The meaning shall be adopted for the purposes of the taxes to which the DTC applies.
It is fair to say that art 3(2) has occasioned considerable debate among commentators. As a
special rule of interpretation, art 3(2) has priority over the general rules. That said, the meaning
of the words used in art 3(2) are themselves to be interpreted in accordance with the principles
set out in art 31 of the VCLT. Thus, in applying the provisions of the DTC, as regards undefined
terms, the right of a contracting state to apply the ordinary meaning which the relevant term
has under domestic law is subject to the general requirement of good faith and the need to have
regard to the object and purpose of the DTC. The use of the word 'shall' in art 3(2) indicates a
mandatory requirement to apply domestic law in the case of undefined terms, unless the
context otherwise requires. Throughout the OECD Model Convention the words 'shall' and'
may' are used deliberately to indicate mandatory and permissive provisions. The use of the
word 'shall' in art 3(2) indicates that recourse must be had to the relevant provisions of
domestic tax law in priority to any other meaning, unless the context otherwise requires.
The contracting state seeking to apply the DTC is State B for the purposes of art 3(2)

Articles 7 and 14

The two relevant articles of the DTC are art 7 (Business profits) and art 14 (Income from
employment). The words 'salaries, wages and other similar remuneration derived ... in respect of
an employment' in art
14 are not defined in the DTC. The words 'enterprise' and 'business' in art 7 are only partially
defined in art 3.

The word 'enterprise' is wide enough to include the economic activity itself: the business. Thus,
the focus is on what is meant by 'business', which is partially defined in art 3(1) as a concept
that 'includes the performance of professional services or other activities of an independent
character'.

An inclusive definition is not a complete definition. It simply identifies a specific meaning that
is to be included in the more general meaning. The general meaning must therefore be given
its ordinary meaning in accordance with domestic tax law. Thus, 'enterprise', 'business' and
'salaries, wages and other similar remuneration derived ... in respect of an employment', are
not defined terms for the purposes of art 3(2). So, we turn to the domestic tax law of UK.

Synonymous words in domestic law are acceptable as different tax codes use different
language to express the same ideas. The UK Tax law provision that corresponds to the “profits of
an enterprise” within art 7 (business profits) is the charge to income tax on the “profits of a trade,
profession or investment”.

The question is whether they apply to the extended meaning of that phrase (at least as regards
the word
'trade') in Income Tax Act 2015, s.2. It seems likely that the phrase the “profits of an enterprise”
within art 7 also includes the profits arising from the deemed trade pursuant to Income Tax Act
2015, s.2. The result of the s 2 deemed trading treatment is that Leo's income derived from his
Accounting activities does constitute profits under art 7 of the DTC.

Changing a domestic
provision

Changing a domestic provision, so as to reallocate income from one article in a DTC to another,
after the conclusion of a DTC may contravene the requirements of good faith imposed by art
31(1) of the VCLT. The fact that art 3(2) refers to the domestic tax law meaning of undefined
terms does not permit UK to deprive a DTC article of its effect by unilaterally changing its
domestic law to deem income to fall within another category. As UK changed its domestic law
after the conclusion of the DTC so as to reallocate income from one article to another – to
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change the effect of the distributive rules of a DTC with respect to the particular type of income
that might contravene the requirements of good faith imposed by art 31(1) of the VCLT and by
international law generally.

The amended meaning given by the subsequent change in domestic law would not be the
'meaning' which could be applied under art 3(2) when construed in accordance with art 31(1)
of the VCLT. The argument is, therefore, that a breach of the good faith obligation might
override the words 'at any time' in art 3(2). Alternatively, for the purposes of art 3(2), the 'context'
of the DTC would require a meaning different from that supplied by domestic tax law. If UK was
seeking to rely on s 2, there is an argument that they would not be able to rely upon it. However,
it is Leo that is seeking to rely on s 2. Therefore, UK acting in good faith is not relevant, which
effectively negates the force of these arguments.

Conclusion

Do the words in art 3(2) “unless the context otherwise requires” demand a different meaning
from the
domestic tax law meaning provided by Income Tax Act 2015, s.2? The word ‘requires’
implies the
'context' would have to present a strong case for a different meaning. ‘Context’ in art 3(2),
arguably, has a wider meaning than that used in art 31 of the VCLT and permits internal and
external contexts to be considered. However, there is seemingly nothing in the context which
would, prima facie, seem to require a different meaning from that given by Income Tax Act 2015,
s.2.

In view of all of the above arguments, Leo’s income from his employment as an Accountant
would seemingly be exempt from income taxation in UK due to the nonexistence of a PE, and
the inapplicability of the ‘context’ argument.

Q2a

 Sections 98, 99 Section 7 (j) (i) of Act 896 defines the status of Double Taxation
Agreements. With the exception of the Specific Anti-Avoidance (Section 31, 32 and 33)
and General Anti-Avoidance Rules (Section 34) in Act 896 the terms of Double Taxation
Agreement ratified by parliament shall prevail over Act 896.
Section 98 (1) To the extent that the terms of an international arrangement to which the
Republic is a party are inconsistent with the provisions of a tax law, the terms of the
international arrangement shall prevail over the provisions of the tax law.
 Section 98(2): Subsection (1) applies (a) only to an international arrangement ratified by
Parliament under Article 75 of the Constitution; and (b) subject to subsection (5) and
section 99.
Section 98 (4) For the purpose of subsection (3), the Commissioner General may, by
service of a notice in writing, require the tax debtor to pay the amount to the
Commissioner-General by the date specified in the notice for transmission to the
competent authority.
 Section 98 (5) Where an international arrangement requires Ghana to exempt an amount
from tax or subject an amount to reduced taxation, the exemption from or reduction of
tax is not available to an entity that
 (a) for the purpose of the arrangement, is a resident of the other contracting
State; and
 (b) fifty percent or more of whose underlying ownership is held by persons who,
for the purpose of the arrangement, are not residents of the other contracting
State or Ghana.
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Section 99 (1),(2),(3): Despite any provision in a tax law, where the Commissioner-General is of
the opinion that a person might otherwise secure a tax benefit under a tax avoidance
arrangement, the Commissioner-General may adjust the tax liability of that person in a way that
the Commissioner-General considers appropriate to counteract the tax benefit
(2) The Commissioner-General may, pursuant to subsection (1) serve the person with a
notice specifying
 (a) the tax benefit;
 (b) the arrangement; and
 (c) the adjustment made by the Commissioner-General.
 (3) A notice under subsection (2) may be incorporated in a notice of assessment.

Q2 a) II

The Vienna Convention on the Law of treaties (VCLT) codifies international customary law. The
Convention is used interpreting treaties even for states that have not ratified it. Article 31 (1) of
the VCLT contains three principles within which international treaties should be interpreted.
These are as follows:
 I. A treaty shall be interpreted in good faith
 II. The parties are to be presumed to have the intention that appears from the
ordinary meaning of the terms used by them (textual approach)
III. The ordinary meaning of a term has to be determined in the context of the treaty and in
the light of its object and purpose.

Q2 b
 Non discrimination Article 24 of the Model Convention on Income and on Capital
prohibits the contracting State from imposing tax burdens on citizens or residents of the
other Contracting State that are less favourable than imposed on their own citizens or
residents. The article applies to permanent establishments of the Contracting States.
Non discriminations refers to distinguishing between persons adversely on the grounds
that are unreasonable, irrelevant or arbitrarily.
 The article requires countries to allow the deduction of amounts paid by residents of the
treaty partner on the same basis as amounts paid to residents of the first country. It
affords the protection against discrimination indirectly because the beneficiaries of the
legal protection are domestic enterprises. It also ensures that enterprises whose capital
is owned or controlled by residents of the treaty partner must be treated no less
favourably than domestically owned for controlled enterprises.

Q2 c
 A resident of a contracting state who believes that the action of one or both contracting
states will cause or caused him or her to pay a tax not in accordance with the treaty may
appeal to the competent authority of the state of which he or she is a resident. The
competent authority will determine whether the taxpayer’s complain is justified and, if
so, will attempt to provide an appropriate remedy. If the competent authority cannot
resolve the dispute, he may try to resolve it through consultation with the competent
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 authority of the other contracting state.
 The Article 26, Mutual Agreement Procedure, contemplates that competent authorities
will attempt to resolve matters referred to them, they are not required to reach
agreement even if the results is that the taxpayer is subject to double taxation. Even
though a taxpayer can make its case to the competent authority of its country of
residence, the taxpayer is not allowed to participate directly in the consultative
procedure of between the competent authorities of the contracting states.

Q3
MTN Telecom Ltd

MTN Telecom Ltd is the top holding company of the group. It is acknowledged that the group is
effectively run out of Hamburg (via MTN Hamburg) where the key personnel reside. In order to
determine the corporate residence implications to MTN Telecom Ltd of Timore moving to the
GHana, it would be necessary to identify the key decisions being considered by that company.
It may be that the only decisions being made by the top hold company are to retain its
investment in the underlying group, determine dividend payments and perhaps enter into
banking commitments.

If Timore moves to the Ghana and instructs MTN Telecom Ltd board from Ghana regarding
e.g. the acceptance or rejection of a bid made by a potential purchaser, payment of dividends
or the entering into of financial commitments then given that the other board members are
nominee directors it is likely GRA may argue that the company is being managed and controlled
from the Ghana.

If however the nominee directors were replaced by more robust directors with knowledge of
the company’s business e.g. directors of operating subsidiaries and Timore did not instruct
but merely offer advice it would be less likely that GRA would be able to successfully argue that
the company was managed and controlled in the Ghana. It would be necessary that these
directors met at least quarterly and as and when required and made decisions rather than merely
rubber stamping decisions made by Timore in Ghana.

De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes) 5 TC 198 is often quoted as
authority for the rule that a company is resident where its board of directors meet, provided that
the real business of the company is carried on at those meetings. This rule has been affirmed
in subsequence cases including Wood v Holden, [2006] STC 433, CA the last corporate
residence case to reach the Court of Appeal.

The importance of holding substantive board meetings was also underscored in the Laerstate
case. Indeed, Laerstate BV [2009] UKFTT 209 (TC) exhibits a catalogue of fundamental flaws
which undermined the assertion that the real business of that company was being conducted
at directors’ meetings. For example for a substantial period, no board meetings were held, even
though significant management activities were being undertaken in the UK by the UK-based
director.

The following recommendations are made to ensure that central management and control is
being exercised at board meetings held outside Ghana, in the case of MTN Telecom Ltd and the
intermediary holding companies.

i. The companies should acquire substance in their respective countries of

incorporation e.g. staff and offices.
ii. Key personnel should be appointed to the respective boards;
iii. Meetings should be held quarterly and as and when required
iv. Neither Timore or any other director should participate in board meetings from
the Ghana
v. Actual decisions should be taken at the board meetings. i.e. the meetings should
not merely rubber stamp decisions made elsewhere.
vi. Timore should not negotiate key contracts in Ghana

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 The intermediary holding companies

Similar comments apply to those made in respect of MTN Telecom Ltd. In addition, certain
cases have considered the application of the case law test in the context of subsidiaries

Untelrab Ltd v McGregor; Unigate Guernsey Ltd v McGregor [1996] STC (SCD) 1, was a case
in which subsidiaries of a UK-resident parent were held to be resident where their boards met
(in Bermuda) and their business was transacted. This was even though it was found that the
boards functioned to give effect to the parent's wishes and were 'complaisant’ to do the parent
company's will. Nevertheless, the directors demonstrated that they were exercing decision
making since if the parent had made an improper or unreasonable request the board of the
subsidiary would have refused to comply.

The fact that certain of these companies are located in treaty jurisdictions with a standard
residency tie-breaker clause means that for Ghana purposes their residence will be determined
by where their place of effective management is located if they are deemed to be resident in
Ghana by virtue of central management and control and resident in their country of
incorporation e.g. by virtue of being incorporated there. Given that it is noted that these
companies have little presence in their countries of incorporation it is unlikely that the place of
effective management criteria will lead to a different determination than that obtained by applying
the case law test of central management and control.

As the tax residency of the intermediary holding companies may be significant to the
international tax structuring of the group it would be necessary to take advice in each of the
countries affected by the residency status of an intermediary holding company as each country
may apply different criteria in determining corporate residency.

MTN Hamburge

MTN Humburg has been described as a company of considerable substance based in Hamburg
with a strong board of directors. It is unlikely that Timore’s move to Ghana would result in
that company becoming a Ghanain resident. This is provided that the local board meets
regularly and decisions are taken at those board meetings relating to the key strategic
decisions of that company.

Even if central management and control was demonstrated to be exercised in the Ghana,
the Ghana German tax treaty would apply the treaty tie-breaker test so that residence would
be determined by reference to MTN Hamburg place of effective management.

It is very unlikely in practise that GRA would challenge the residence status of an operating
company such as M T N H u m b u r g with substantial presence located in a high tax country,
as Ghana would be required to give credit for the foreign tax suffered on its profits.

Q4 a

 The credit system gives credit for foreign income against the home country tax liability
on that income. The exemption system means that the home country does not tax
income which has already been taxed abroad. Under the exemption method, the
jurisdiction to tax rests exclusively with the country of source. The exemption method
completely eliminates residence source international double taxation because only one
jurisdiction, the source country is imposing tax.
 Under the credit method resident taxpayers are treated equally from the perspective
of the total domestic and foreign tax liability, except if foreign taxes exceed domestic
taxes.
 The choice of the systems of double taxation relief can determine the extent to which a
country is able to preserve its tax base. Although simpler to operate than the credit
system, use of a basic exemption system is likely to lead to a country’s residents
transferring their mobile capital to tax havens.

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  It is considered good practice for a country to adopt a method of double tax relief
which ensures both capital export neutrality and capital import neutrality. If these
conditions prevail then the working of the economy is relatively unaffected by the issue
of double taxation.

Q4b

 Economic double taxation is abroad term that covers any situation where an amount of
income is taxed twice. For example, it occurs when a single country taxes the same
income twice, as in the case of taxation of corporate profits. These are subject to
corporation tax and when the post-tax profits are distributed to shareholders in the form
of dividends, the shareholders are subject to income tax in part or in full on the dividend
shareholders are subject to income tax in part or in full on the dividend they receive.
Another example would be a worker whose wages are subject to income tax. When the
worker spends the (post-income tax) wages, he may be subject to consumption with
international double taxation, which is a narrower, legal form, technically known as
juridical double taxation.
 Juridical double taxation occurs where more than one country attempts to tax the same
income.

Q4 c
A double tax agreement (DTA) is a territorial agreement, with overriding effect, which usually
takes the form of a bilateral treaty in relation to the taxation of income and capital gains that has
been negotiated for one or more of the following purposes:

a. to provide relief from international juridical double taxation, which can be defined
as the imposition of comparable taxes in two (or more) States on the same
taxpayer in respect of the same subject matter and for identical periods;
b. to remove obstacles in relation to cross-border exchange of goods and services
and movements of capital, technology and persons (i.e. to prevent tax from
discouraging the free flow of international trade and investment and the transfer
of technology and to promote the development of economic relations between
states);
c. to provide relief from tax;
d. to prevent fiscal avoidance and evasion;
e. to facilitate the exchange of information;
f. to assist in recovering unpaid tax;
g. to provide a means of settling, upon a uniform basis, the most common problems
which arise in the field of international juridical taxation;
h. to prevent discrimination between taxpayers;
i. to provide a measure of fiscal and legal certainty in international operations

Q5 Answer to be discussed in Class

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