EU legal Person Double Taxation Laws and Structures

Abstract

The United Nations Conference and Trade Development (2000) explains that double taxation has caused the occurrence of jurisdictional vacuums as well as conflicts. This is because most nations lack the necessary definitions of income classification. Thus leads to a person being considered as a resident by two or more states by virtue of the divergent perspectives held by the states involved. Such situations are common among people who maintain habitual abodes and conduct professional activities in 2 or more nations. It is also the case for entities operating in 2 or more nations (United Nations Conference on Trade and Development, 2000). Take, for example, a firm may be incorporated under the laws of Germany, which will determine residence by exploring the place of incorporation. In the same manner, the firm might be effectively managed and controlled from France, which determines the residence by exploring the place of management. The company would be required to meet the residence test in both France and Germany. This will ergo lead to it being taxed as a resident. Likewise, the existence of a jurisdictional vacuum allows two states to tax the same item of income by their own definition if they think that the item arises from sources within their territories. The United Nations Conference and Trade Development (2000) indicate that such definitions cause mismatches in the timing of income recognition and accounting standards. The occurrences are mostly classified as either economic or judicial. The topic on how to avoid double taxation is explored by Radu (2012), who notes that unilateral or international schemes can be put in place. The unilateral measures are often determined by the choices of economic policy. For instance, a nation which exports capital will exempt the foreign source income from their trade agreements so as to avoid being in a competitive disadvantage in third-country markets. The capital importing nations will exclude interest remunerating bank deposits for the non-residents in order to attract capital and improve on foreign direct investment (Radu, 2012; Barbuta-Misu & Tudor, 2009). The unilateral restraint measures are thus dictated by the restrictions which are imposed by a nation outside its own territory.