Pannasastra University of Cambodia

Topic: International TaxationCourse: Fiscal Legislation & Cambodia TaxationProf. PEN SopharaPeriod: 7:00 – 8:30 PM (Monday & Thursday)

Group 7:1)THON Pheakdey2)SENG Sobunna3)PRAK Sopheavina

1Contents:

I. Objective

II. The Organization for Economic Co-operation and Development (OECD) – model tax convention

III. The concept of corporate residence

IV. The OECD Article of the model convention with respect to taxes on income and on capital

V. Withholding Tax

VI. Underlying Tax

VII. Means of establishing a taxable presence in another country

VIII. Double Taxation treaties

a. The OECD model tax convention

b. Principles of relief for foreign taxes

IX. Conclusion

I. OBJECTIVES Define term “residence” Withholding taxes and different ways of an enterprise establishing a

taxable presence Double taxation treaties and the methods used to relieve foreign tax

II. The Organization for Economic Co-operation and Development (OECD) – model tax convention

OECD published a model tax – a treaty that can be used by countries

when drafting their double tax treaties.

1III. The concept of corporate residence

A residence-based tax, whether corporate income tax will be charged depends on the residence

The followings are the test for establishing residence of an enterprise:Place of control and central management of an enterprise – the place where

directors’ meetings are held is usually an important criterion when examine the exercise of control

Place of incorporationPlace of control and place of incorporation

IV. The OECD Article of the model convention with respect to taxes on income and on capital

The OECD – Articles of the model convention with respect to taxes on income and on capital defines the meaning of residence in Article 4, paragraph 1

Article 4, paragraph 3, gives the preference to the concept of place of control and central management • Contracting States – countries that are party to the treaty• The changes on May 2003 of the OECD model is to strengthen the application of the effective

management concept• Place of effective management – the key management and commercial decisions that are necessary

for the conduct of the entity’s business• Place of effective management – ordinary place where the most senior person or group of person

makes its decisions which normally corresponds to where it meets OECD can be applied when there is no clear place of effective management or the place of effective management OECD model based tax treaty, residence due to place of incorporation will only apply if effective management and

primary economics activity do not resolve the problem

V. Withholding tax The general withholding tax shall be determined as follows:

The rate of 15 percent on:Income received by a physical person from the performance of services including

management, consulting, and similar services. Royalties for intangibles and interest in mineral, and interest paid by a resident

taxpayer carrying on business other than domestic banks and saving institutions to a resident taxpayer

On the income from rental of movable and immovable The rate of 10 percent

On the income from rental of movable and immovableThe rate of 6 percent

On interest paid by a domestic bank or saving institution taxpayer having fixed term deposit account

The rate of 4 percent On interest paid by a domestic bank or saving institution taxpayer having non-

fixed term saving account

The type of payment normally subject to withholding tax include: • Interest • Royalties • Rents • Dividend• Capital gain

VI. Underlying tax

Is the calculated as a gross among of dividend receive by the enterprise as a proportion of the after tax profit of the foreign enterprise times the tax paid on those profits.

10VII.Means of establishing a taxable presence in another country Enterprises with trading interests abroad have to make is whether to run an

overseas operation. The main taxation considerations in the decision between the two options:

Subsidiary Branch

11VIII. Double Taxation treaties

The territorial approach to taxation: each country has the right to tax income earned inside it borders.

The worldwide approach: claims the right to tax income arising outside its border if that income is received by a corporation deemed resident within the country.

12a. The OECD model tax convention Business profit of an enterprise of a contracting state shall be taxable only in

that state unless the enterprise carries on a business in the other contracting state through a permanent establishment in that state.

The term permanent establishment includes especially:A place of managementA branchAn officeA factoryA workshopA mine, an oil or gas well, a quarry or any other place of extraction of

natural resources.(The OECD model in Article 5)

13b. Principles of relief for foreign taxes

ExemptionTax creditDeduction

14IX. Conclusion

15

Thank you for your attention!