Economic and financial section > Double taxation and tax evasion

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“But, before discussing how Governments ought to view this matter, it may be
well to ask how do they, in fact, regard it in the light of their historical development
■ and constitutional practice.
“A survey of the whole held of recent taxation shows how completely the Govern¬
ments are dominated by the desire to tax the foreigner. It seems to be clearly instinc¬
tive in laying down general principles to treat ‘origin' as of first importance and
‘residence' as of secondar}' importance, i.e., if the origin and source of income are
within a country’s borders, it is assumed that that country has the prime right of
taxation on that income, although it goes to some person abroad. There are a few
modifications, but this is the main instinctive principle. From this flows the consequence
that, when double taxation is involved, Governments would be prepared to give up
residence rather than origin as establishing the prime right;”
In other words, taxes based on the idea of origin are, particularly in the form of impots
reels, still very widely applied, and States, particularly those which are developing, and new
countries would find it difficult to dispense with them.
III. — But there is yet a third point. During our discussions we were struck, in considering
the comparative development of fiscal ideas, by the progress made by the conception of the
personal tax based on the idea of domicile. The preponderating importance of this conception
in taxation first became manifest in Great Britain and in the United States in the nineteenth
century. Most of the other nations of Europe and America seem to be moving slowly but
definitely in the same direction.
The idea of the personal or general tax is clearly connected with the idea of domicile and
not with that of origin or source. This leads logically to the reciprocal exemption in the country
of origin of income, the owner of which resides abroad, that is to say, the second method defined
by the economists. But, as the economists themselves recognised, this method — which is the
simplest one -— although suitable in the case of two countries in which conditions are fairly
equal, can hardly be applied in the case of countries “not economically balanced in this matter;
countries whose relations were distinctly those of debtor and creditor”.
The first method, which consists in refunding to the taxpayer the tax which he has paid
abroad, places a country’s budget at the mercy of increased taxation in another country. The
third method (allocation of relief) has been tried within the British Empire under the most favour¬
able conditions, e.g., similar principles of taxation, a common tongue, experienced administra¬
tive staff and common attachment to the Empire. In spite of this, we do not think that it would
be possible to adopt generally such a very complicated system in the international sphere.
IV. — We observed, therefore, that the method of assigning income, which formed the basis
of numerous treaties in Central Europe and of a collective convention, appeared at first sight
to be the one which was most generally in use. But the evolution of fiscal practice, by adding
personal taxes to taxes founded on the idea of origin or by substituting the former for the latter,
and our desire to attain universality in our decisions, made it necessary for us to take into
account the difficulties caused by differences in the various fiscal systems. But, as we have
demonstrated above — and in this respect we are in agreement with the scientific experts
none of the three systems can be applied integrally and by itself.
How were we to escape from this dilemma ? After very long discussion, we believe that we
have discovered the solution in refraining from suggesting any one single system as applicable
to every form of taxation. Our fundamental idea is based on the following fact: there exist in
the world many different kinds of taxes — impots reels or schedular taxes, and general or per¬
sonal taxes on income (to the latter may be added succession duties and taxes on capital). We
therefore began by differentiating between impots reels or schedular taxes, on the one hand,