The International Income Taxation of Portfolio Debt in the Presence of Bi-Directional Capital Flows

eJournal of Tax Research, Vol. 4, No. 1, pp. 5-24, 2006

Posted: 18 Oct 2006

See all articles by Ewen McCann

Ewen McCann

Victoria University of Wellington - Taxation Research Group, School of Accounting and Commercial Law

Timothy Edgar

Osgoode Hall Law School

Multiple version iconThere are 2 versions of this paper

Abstract

A country's net flow of capital consists of simultaneously occurring imports and exports. Because a tax on the income from capital imports affects the quantity of capital exports and vice versa, tax policies toward inbound and outbound capital should be jointly formulated in order to avoid distorting these bi-directional flows and the local capital market more generally. For a small open economy, distortion-free local capital markets are shown to require, in the limited case of portfolio debt flows: (1) the taxation of income from capital imports by the importing country at the same rate as income of residents from locally invested capital; and (2) the exemption from net tax (that is, after any foreign tax credit) in the home country of the income of its residents from capital exports.

Keywords: tax, capital flow, tax policy, capital market, efficiency

JEL Classification: F21, H20

Suggested Citation

McCann, Ewen and Edgar, Timothy, The International Income Taxation of Portfolio Debt in the Presence of Bi-Directional Capital Flows. eJournal of Tax Research, Vol. 4, No. 1, pp. 5-24, 2006, Available at SSRN: https://ssrn.com/abstract=938017

Ewen McCann (Contact Author)

Victoria University of Wellington - Taxation Research Group, School of Accounting and Commercial Law ( email )

2A Nikau Rd
Point Howard
Lower Hutt, 5013
New Zealand

Timothy Edgar

Osgoode Hall Law School ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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