Where’s the source? Ambiguities in the principles of international taxation

The starting points in international taxation, as used by countries around the world to establish and divide tax jurisdiction and as the basis for the charge to tax income, embed an idiosyncrasy of analytic indistinctness. The residence and source principles are geographically geared in the same direction, towards the supply side of income and the country of origin. At the same time, however, the source principle is also geographically geared in the opposite direction, towards the demand side and the country of destination. This creates a world of smoke and mirrors, where a veil of apparent universal consensus on the principles of international taxation disguises deep underlying antagonisms between countries and regions when it comes to dividing entitlements to tax international income. In a time of isolationism and unilateralism, such divides are problematic. A political solution to the problem of how to geographically distribute tax base among countries is not (or not yet) available for the e-profits of tech giants, for example, or for dividing taxing rights on portfolio investors’ capital income between richer and poorer countries. The author believes that it would make a difference if we were to cease our troubled ‘residence-versus-source thinking’ and instead to direct the debate to what it is really about: tensions in the international tax regime as a result of a growing geographical divergence between the supply side and the demand side of income creation.