Introduction: the international tax regime
In March 1923, four economists met in Geneva, Switzerland. They were there at the behest of the newly formed League of Nations to study the problem of double taxation. The report they prepared became the foundation stone of the international tax regime, and the principles they enunciated are today incorporated in over 3,000 bilateral tax treaties and in the international tax laws of the major economies of the world.
The main problem that the four economists (Professor Bruins from the Netherlands, Professor Einaudi from Italy, Professor Seligman from the United States (US) and Sir Josiah Stamp from the United Kingdom (UK)) set out to solve was the problem of double taxation. Countries are generally recognized to have the right to tax their residents on worldwide income “from whatever source derived”, and also to tax non-residents on income arising within their borders. In the US, these principles are reflected in Internal Revenue Code (IRC) sections 1 (imposing tax on the worldwide income of residents) and 2(d) (limiting the section 1 tax in the case of non-residents to US-source income).
Already in the nineteenth century, it was recognized that this situation could easily lead to cross-border income being subject to taxation both by the country of residence and by the country of source. The issue of double taxation was the subject of several nineteenth century tax treaties. But the problem really came to the fore in the years following World War I, because the world was...
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