International profits and interest payments: do the tax differentials still make any sense?

Gerold Krause-Junk
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Gerold Krause-Junk: International Tax Institute, University of Hamburg

Finnish Economic Papers, 1988, vol. 1, issue 1, 94-104

Abstract: According to the Western Cominental European doctrine, international capital incomes are taxed differently according to whether they derive from equity or loans. Principally - though there are lots of practical deviations - interest payments are taxed according to the rules of the residence country, which is also the recipient of the tax yield, whereas profits are taxed according to the rules of the source country, which is also the beneficiary of the tax income. The basic rationale behind this differentiation is Slimmed up by the following two propositions, namely (1) The relevant tax system is to be determined by the location of the entrepreneurial activity. (2) Entrepreneurial activity typically is related fO ownership and is not related to t/ie extension of credit. The paper questions both of these propositions and comes to the conclusion that the tax differentials do not make sense any more.

Date: 1988
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