Conventions fiscales internationales

Conventions fiscales internationales

• International tax agreements aim to eliminate double taxation, fraud, and tax evasion, facilitating cooperation between states.
• Double taxation arises from the sovereign right of states to tax. A taxpayer might be considered a resident in one country and also have income sourced in another.

Double Taxation (Legal)

• Occurs when a single income or asset is taxed by two jurisdictions.

Double Taxation (Economic)

• When different individuals or entities are taxed on the same income. Example: company dividend payments, taxed both on profits and when distributed.
• A mother-daughter company structure (régime mère-fille) is used for tax optimization; a structure enabling mitigation of double taxation for related entities. The relevant code article is 145 of the Code Général des Impôts. Conditions include 2 French-taxable companies, a minimum 5% holding by the mother company in the daughter and a minimum two year holding.

Elimination Methods - Tax Exemptions

• Full Rate Determination: Completely removing the right of taxation in one country.
• Progressive Exemption: Considering income from both countries for calculating tax rates, but only taxing the income of the country not being exempt.

Elimination Methods - Tax Credits (Imputation)

• Full Imputation: A rarely used system allowing complete deduction of source country taxes.

• Partial Imputation: Limits the imputation by capping it to the tax owed in the residence country. Example: 30 in source country, total income 300, residence country income 100, and 75 in total theoretical tax in residence. To determine tax credit in the residence country, 100 (income from residence country) x 75/300 = 25. The imputation is capped at 25.

• Fixed-Rate Tax Credit: A method frequently used between developed and developing countries to allow a fixed amount of tax to be deducted based on the income from the source country, regardless of how much tax is actually paid in the source country.

• Generalized Tax Credit (France): The most common method in modern French tax conventions; calculating French tax on foreign-source income and deducting this amount from the actual tax paid.

International Tax Conventions (P2)

• France has concluded over 121 tax treaties to avoid tax evasion and fraud, enabling international cooperation.
• Two models exist: OECD and UN models, with the OECD model being the most used. Conventions based on the same model allow a uniform framework.
• OECD conventions often follow an introductory section.

OECD Model Convention's Resident Status

• Determining Resident Status (Individuals): Based on a combination of: Personal residence (6 months+), professional activity location, and principal investments/asset management. Conflict situations between states regarding residency are resolved through the tax treaty.
• Determining Resident Status (Corporations): Often based on company registration, but also on the location of primary decision-making and leadership.

Qualification of Income and Right to Tax

• Income qualification varies between countries; tax treaties are essential to resolve these situations.

Reading a Tax Convention

• Introductory Articles: Define the convention's purpose and scope, outlining applicable individuals, taxes, and defining essential terms like establishment, residency, and country.
• Distribution of Taxation Rights: Key articles outline the specifics of jurisdiction over various sources of income:
• Article 7 (Company Profits): Profits are usually taxed in the country where the company is located, unless a business has a permanent establishment in another country, in which case taxes are levied proportionally in the host country.
• Article 10 (Dividends): Dual taxation avoidance is common.
• Limit to 5% if the shareholder holds more than 25% stake.
• Limit to 15% if the shareholder stake is under 25%
• Article 11 (Interest): Interest income was historically subject to withholding tax in France, but after 01/03/2021 is generally only taxed in the residence country.
• Article 13 (Capital Gains): Primarily taxed in the residence country, except for real estate (taxed in the country where the property is located) and significant stakes (+25% shares, leading to additional tax obligations).
• Article 15 (Salaries & Wages): Taxed primarily in the country where the work is performed; temporary employment exceptions exist.

Multilateral Convention (OECD)

• Aimed at strengthening anti-tax fraud and evasion measures.
• Aims to harmonise the application of specific stipulations for countries under the same conventions.
• Key for the reconciliation of a set of tax treaties into one large one, avoiding conflict.
• Establishes a framework to reform international taxation for multinational companies, focusing on creating fair tax policies between countries based on profit creation.