What is tax jurisdiction? Tax jurisdiction assessment

Tax Jurisdiction Overview

Tax jurisdiction refers to the power of a sovereign state to levy taxes in accordance with its laws. It is a basic right of a state recognized by international law. In addition to the Vienna Convention on Diplomatic Relations (1961) and the Vienna Convention on Consular Relations (1963), which stipulate restrictions on the tax jurisdiction of foreign embassy and consulate officials, sovereign states have the right to determine and exercise their tax jurisdiction, stipulate taxpayers, taxable objects and tax amounts in accordance with their respective political, economic and social systems and the principles that best suit their national interests, and foreign countries have no right to interfere.

The type of tax jurisdiction a country adopts is determined by the country based on its national interests, national conditions, policies and economic status in the international arena. Generally speaking, developing countries with more capital and technology inputs tend to focus on maintaining territorial jurisdiction; while developed countries with more capital and technology outputs tend to focus on maintaining resident (citizen) jurisdiction. In order to safeguard their own interests, most countries generally exercise both types of tax jurisdiction at the same time. Internationally, countries that exercise only territorial jurisdiction include Brunei, France, the Netherlands, Bolivia, the Dominican Republic, Guatemala, Nicaragua, Paraguay, Brazil, Ecuador, Panama, Venezuela, etc.; countries that exercise both resident jurisdiction and territorial jurisdiction include China, Singapore, Malaysia, Thailand, Afghanistan, Japan, India, Indonesia, Pakistan, the Philippines, Austria, Belgium, Denmark, Norway, Sweden, Finland, Switzerland, Luxembourg, Germany, Greece, Italy, Spain, Portugal, the United Kingdom, Ireland, Monaco, Mexico, Colombia, El Salvador, Bangladesh, Honduras, Peru, Australia, New Zealand, Fiji, Papua New Guinea, etc. The United States exercises resident jurisdiction, citizen jurisdiction and territorial jurisdiction at the same time. The simultaneous exercise of two different tax jurisdictions by various countries will inevitably lead to the expansion of international double taxation.

Scope of tax jurisdiction

The scope of a country's tax jurisdiction, in terms of geography, refers to the country's territorial boundaries; in terms of personnel, refers to all citizens and residents of the country, including nationals, foreigners, dual nationals, stateless persons and legal persons.

Principles of tax jurisdiction

Internationally, tax jurisdiction is usually determined by:

① The principle of nationality, also known as personalism, is to determine the tax jurisdiction based on the nationality, registration place, residence, domicile and location of the management agency of the taxpayer (including natural persons and legal persons). All citizens and residents of a country (including natural persons and legal persons) are subject to the tax jurisdiction of that country and have unlimited tax obligations to that country.

② The territorial principle, also known as territorialism, is to determine the tax jurisdiction of a country based on its territorial boundaries. All persons (including natural persons and legal persons) within the territory of the country, whether they are nationals or foreigners, are subject to the tax jurisdiction of the country and have limited tax obligations to the country.

Classification of tax jurisdictions

The tax jurisdiction exercised by countries around the world can be roughly divided into resident jurisdiction, citizen jurisdiction and territorial jurisdiction. In essence, the former two are tax jurisdictions established based on the principle of nationality, while the latter is tax jurisdictions established based on the principle of territoriality. Therefore, tax jurisdiction can also be summarized as resident (citizen) jurisdiction and territorial jurisdiction.

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