The International Income Taxation of Portfolio Debt in the Presence of Bi-Directional Capital Flows

47 Pages Posted: 16 Jul 2004

See all articles by Timothy Edgar

Timothy Edgar

Osgoode Hall Law School

Ewen McCann

Victoria University of Wellington - Taxation Research Group, School of Accounting and Commercial Law

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Abstract

A country's net flow of capital consists of simultaneously occurring imports and exports. Because a tax on the income from capital imports affects the quantity of capital exports and vice versa, tax policies toward inbound and outbound capital should be jointly formulated in order to avoid distortion of these bi-directional flows. For a small open economy, welfare-efficient local capital markets are shown to require, in the limited case of portfolio debt flows: (1) the taxation of income from capital imports by the importing country at the same rate as income of residents from locally invested capital; and (2) the exemption from tax in the home country of income of its residents from capital exports.

Suggested Citation

Edgar, Timothy and McCann, Ewen, The International Income Taxation of Portfolio Debt in the Presence of Bi-Directional Capital Flows. Available at SSRN: https://ssrn.com/abstract=565581 or http://dx.doi.org/10.2139/ssrn.565581

Timothy Edgar (Contact Author)

Osgoode Hall Law School ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Ewen McCann

Victoria University of Wellington - Taxation Research Group, School of Accounting and Commercial Law ( email )

2A Nikau Rd
Point Howard
Lower Hutt, 5013
New Zealand

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