A new double taxation agreement (DBA) between the People`s Republic of China and New Zealand was signed on 1 April 2019. This agreement, if it is in force, will replace a 1986 agreement and, therefore, will put in place modern tax legislation for cross-border economic activities. Taiwan uses the credit method to avoid double taxation of income. Foreign taxes paid on income from foreign sources can be credited with all of Taiwan`s income tax debt. However, the credit is limited to additional taxes resulting from income from foreign sources. For a person other than a person, the person is treated as a resident of the State party in which his seat is located, in accordance with the 1986 agreement. In the new DBA, this Tiebreaker test has been removed, so that, in dual residence situations, the person`s residence can only be determined in mutual agreement between the competent authorities. In the absence of such an agreement, the person is not entitled to an exemption granted by the DBA. This can be difficult and companies should therefore do their best not to be in a double stay situation. All DBAs include the POP as a low-cost dispute resolution mechanism. As a general rule, the POP only provides for the relevant authorities to work to resolve the problem.
However, some POPs provisions are supplemented by arbitration provisions to eliminate cases where the relevant authorities are unable to reach an agreement. While the scope of the EFA rules is narrower than at the time of the income contribution in this case, the decision remains a useful guide to the interaction between the EFA rules and our double taxation conventions. It also clarifies the flexibility of tax-saving articles contained in the double taxation agreements and, in this case, a New Zealand taxpayer obtained a tax credit for the tax paid by their CFCs in China and, for taxation, these companies were spared by Chinese tax exemptions. whether section 23 exempted the allocated CFC revenues from double taxation and, if so, whether Ms. Lin calls into question a foreign tax credit for the Chinese tax saved. The tribunal benefited from two well-trained experts, Professor Craig Ellife (expert for Ms. Lin) and Robin Oliver (commissioner`s expert) in the interpretation of China-DBA. The Court considered and answered two questions outlined below.
It is perhaps interesting to note that while the existing 1986 DBA is a ”covered agreement” within the meaning of the multilateral agreement on the implementation of related measures to prevent base erosion and profit shifting (MLI), China`s position on this issue in relation to New Zealand meant that many of the new LMM articles would not apply to the 1986 DBA.