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22 Afr. J. Int'l & Comp. L. 1 (2014)

handle is hein.journals/afjincol22 and id is 1 raw text is: CHOOSING BETWEEN THE UN AND OECD TAX POLICY MODELS: AN AFRICAN CASE STUDY VERONIKA DAURER* AND RICHARD KREVER* I. INTRODUCTION Most of the world's income tax systems impose tax on the worldwide income of their residents and on profits with a source in the country where the income is derived by a non-resident. In the event of cross-border investments or business activities, two jurisdictions may wish to tax the same profits: the source country because the income is attributable to factors within that country and the residence country because all residents are taxed on their worldwide incomes. In the absence of any agreement between the source country and the residence country of the cross-border investor or business operator, the source country would have primary taxing rights if only because it is in a position to extract the tax before the profits are repatriated to the residence country. Unless the residence country wished to double tax the income and in effect discourage any outward investment or business activities by its residents, it will have no choice but to forgo its claimed taxing rights and limit its tax to the difference, if any, between a lower tax rate imposed in the source country and a higher rate imposed in the residence country. Wealthier countries, particularly OECD nations, very often enter into treaties with each other to divide more evenly the taxing rights flowing from their competing claims to tax the same income. Treaties limit the source country's taxing rights, leaving more room for the country in which the investor or business is resident to tax the profits. Where two capital exporting nations enter into a tax treaty, the limitation of the source country's taxing rights has little overall impact if they enjoy roughly equal cross-border investment from one another. If one party to a treaty is a capital importing nation, a treaty would shift overall taxing rights (and tax revenue) from the poorer country to the richer country.1 Many African * LLB, PhD (WU); Fellow, Taxation Law and Policy Research Group, Monash University, Melbourne, Australia and Research Associate, Institute for Austrian and International Tax Law, WU Wien, Vienna, Austria. ** LLB (Osgoode Hall), LLM (Harvard); Taxation Law and Policy Research Group, Monash University, Melbourne, Australia. 1 A. Easson, 'Do We Still Need Tax Treaties?', 54(12) Bulletin for International Taxation (2000): 619 25. African Journal of International and Comparative Law 22.1 (2014): 1-21 Edinburgh University Press DOI: 10.3366/ajicl.2014.0077 © Edinburgh University Press www.euppublishing.com/ajicl 1

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