On the modern stage of enhanced globalization and internationalization of economic relations among countries foreign investments (FDI) are playng importent role. Inflows of FDI for small countries are the main source of economic growth. For this part – international tax policy and international fiscal coordination are importent.
Development of capital and technological markets has increased the variety of income sources of individuals and legal persons. Sources of income have diversified not only by economic fields but also from different countries of the world. In terms of strengthening of trade and economic relations between countries, most actual question is the taxation of internetional transactions. Furthermore, increasing of geographical areas of interfrise activities causes fall of these economic units within the different tax regimes. Tax problems are especially connected with the cases when entity is in one country and the source of income in another country.
In most countries, returns from trade and investment within national borders are subject to income taxation. Taxation of these incomes depends on inter-tax regimes of countries, also on the ratified intarnational tax conventions.
Main aimes of intarnational tax relations are: avoidance of double taxation, state control on payment of taxes and encouragement of investment by non – discriminative taxation.
Generelly accapted principle of intarnational tax relations is that a country is free to a havy tax on taxable object only within its borders and this right doesn`t include the object which arises on other states territory.
Tax lows normally cover two kinds of activities: The activities of a resident of that country in foreign countries and the activities of non – residents in that country.
There are generally three primary objectives underlying countries incorporation of international tax rules into its tax legislation: National wealth maximization, Tax equity or fairness, Economic efficiency.
According to the global aims of intarnational tax policy of one country must not be in collision with other countries tax policy. In our globalised word where capital freely moves between countries, none of the goverment will adopt such tax burden that will cause outflow of investments or their minimal inflow. Optimal interenetional tax policy is based on the capital import nautrality and capital export neutrality.
Capital import nautrality implies that tax regimes ought to be the same to thre income of resident and nonresident investor. Generelly tax policy is the factor in investment decision making process - if foreign investments are taxed differently compared with the local investments tax system becomes unfair and distorts rational decesion making process. For attaining tax aquity and efficiency country must adopt capital import neutrelity. Capital import nautrality is aimd to attain equal taxation of foreign and local investments. Local investments always oppose fact, that unlike them foreign investores are taxed at fewer rates. (especially in cases when local investor`s capital is in immovable form) and when local investor`s capital is immovable, in conditions of asymmetric taxation, they establish offshore economic units and then are investing as the foreign investors. Non existence of capital import nautrality distorts economic efficiency, because foreign investors have competitive advantage. Their cost structure does not include tax costs.
Capital import neutrality means equal taxition of foreign and local investors; capital export nautrlity implies equal taxation of local investors in spite of investment country. These incomes include returns of foreign investors derived in the country and also the income of residents from another and resident countries. On investment dicisions a significant influencing factor is resident countries tax policy.
To achieve tax aquity and fairness country must pursue capital export neutrelity strategy. This approach means (as we already stated) equal taxation of investors income dispite of residence. For taxpayers this means, that they face the same effective tax rates – as in case of investing in resident ot nonresident country. In such policy approach county`s tax policy neither incorages nor discorages outflow of investments – it`s neutral to the investment decesions. For practical implementation of capital import neutrality tax administrations must include in tax base whole income (world income) of taxpayer-as domestically sourced income as well as incomes from foreign sources. If foreign source income is excluded from tax base in fact this means encoragement of investing in foreign country that will result in distoring of economic efficiency. In addition, local investors, whose capital is in the form of immovable property, reckon tax sistem as unfair.
In case of small countries that have nagligible impact on global capital markets capital export neutrality is less profitable, especially when other countries adopt more flexible tax policy. In forming its tax policy a country must take into account proparties of other countries tax policy and espacially of its trade and investor partners that are compatitors in importing of capital. To summarize, where capital export and import neutrelity prevails a country international tax rules will not influence the investors decision one way or another, in which case the rational investor will seek the investment, that gives him or her the greatest return, thus ensuring the most efficient allocation of recourses.