Judicial double taxation as a result of conflict of connecting factors which are commonly used by States to establish jurisdiction to tax the profits of multinational enterprises
The main connecting factors which are commonly used by States to establish jurisdiction to tax the profits of multinational enterprises are “residence” and “source”, which are linked to concepts of “nationality” and “territoriality” used in public international law. Notions of residence and source are recognized by both OECD and UN and are reflected in their tax treaty models. Under residence approach, a state imposes its taxing rights of legal entity or individual based on its relation to the person who derives income. Under source principle, a state assess legal entity or individual to tax based on its relation to assets that generate income. All the states use source principle to levy taxes on income generated within state’s territory. Some states invoke residence/nationality principle and thus tax their citizens and residential companies on their worldwide income (the USA, Russia, Finland, etc.). Some states adopted only territorial principle (Hong Kong SAR, Singapore, Malaysia, Panama, Costa Rica, etc.). However, and most of states utilize both principles. State practice in determining place of residence comprises two main tests: place of...