Exclusive source or residence-based taxation - is a new and simpler world tax order possible?

Abstract

University of Queensland, Australia.1.Under these principles, residents are generally taxed on their worldwide income (residence principle) and non-residents only on their domesticsource income (source principle); see e.g.Woellner, Robin et al., Australian Taxation Law (2001), at 1343. 2. It is recognized that already under the existing international tax rules, in order to avoid double taxation one principle must necessarily yield to the other.This occurs in a number of ways through tax treaties, where countries restrict their source-based taxing rights with respect to non-resident taxpayers in order to exercise their residence-based taxing rights.For example, the permanent establishment concept represents a preference for residence-based taxation by establishing a threshold for source-based taxation of business profits.However, unlike the current international tax regime, where one principle yields to the other in some situations, this article is concerned with whether either residence or source-based taxation yielding completely to the other provides a viable solution in an increasingly globalized world to accommodate electronic commerce transactions.3.These difficulties include the problem of determining a physical presence in the source country as well as the increased mobility of enterprises, making it more difficult to link items of income with specific geographical locations.