Income Tax Treaty Aspects of Nonincome Taxes: The Importance of Residence
41 Pages Posted: 2 Nov 2018
Date Written: October 2017
This article considers the residence-related income tax treaty aspects of nonincome taxes such as the retail sales tax, the value added tax, the flat tax, the X tax, the destination-based cash flow tax, and certain turnover taxes, and discusses the related treaty aspects of the concepts of tax, tax on income, comprehensive taxation, and nondiscrimination. The focus here is on the underappreciated conceptual and technical importance of tax residence in thinking about and applying tax treaties in the context of nonincome taxes. The article makes two main residence-related points. First, that the question of residence is a critical treaty gateway issue—that is, if the United States were to replace the existing income tax with a noncovered, nonincome tax, the affected U.S. taxpayers would cease to be U.S. residents for treaty purposes and as such would no longer be entitled to claim benefits under existing income tax treaties. This residence problem could become even more consequential if the nonincome tax in question was a tax covered by the treaty. Second, the article emphasizes the residence-relevance criterion for evaluating the identity or substantial similarity of new taxes to existing taxes for determining whether a new tax was covered by a treaty.
Keywords: Tax, treaty, residence, nonincome tax, retail sales tax, value added tax (VAT), flat tax, X tax, destination-based cash flow tax (DBCFT), turnover tax, tax on income, comprehensive taxation, nondiscrimination
JEL Classification: H20, K33, K34
Suggested Citation: Suggested Citation