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Advanced Introduction to International Tax Law, Second Edition

Reuven S. Avi-Yonah

This second edition of the Advanced Introduction to International Tax Law provides an updated and succinct, yet highly informative overview of the key issues surrounding taxation and international law from Reuven Avi-Yonah, a leading authority on international tax. This small but powerful book surveys the nuances of the varying taxation systems, offering expert insight into the scope, reach and nature of international tax regimes, as well as providing an excellent platform for understanding how the principles of jurisdiction apply to tax and the connected tools that are used by countries in imposing taxes.
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The source rules

Reuven S. Avi-Yonah

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that were developed in the last century still apply as a legal matter, and they are incorporated by reference into the tax treaty network.

In general, source rules for income can be divided into two types: formal and substantive. Formal source rules are bright line rules that are under the control of the taxpayer, while substantive source rules seek to track the economic source of income. Most of the rules assign one source to each category of income even if economically it has more than one source.

In general, the formal source rules apply to passive income, because that income is supposed to be taxed primarily on a residence basis. The substantive source rules apply to active income because the source country has more of an interest in attributing this type of income to its economic source since it gets to tax it.

The source rule for dividends is generally the residence of the payor, in other words, the corporation paying the dividends. This is a formal rule because it applies even if all the income of the payor derives from a source other than the country in which it is resident, so that economically the dividend does not originate from the country where the payor is resident. Given that the determination of the residence of the payor is generally under the control of the taxpayer under the rules described in Chapter 2, the source of dividends is also typically under taxpayer control.

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