Jurisdiction to tax

The principles of international taxation are influenced by tax equity and

tax neutrality within the national economic sovereignty of each nation.
Tax equity requires that the tax revenues from international economic
activities be shared equitably by nations. It also requires that taxpayers
involved in cross-border activities be neither discriminated against nor
given undue preference in their tax burdens. Tax systems are neutral
when they do not influence the economic choices of taxpayers. They may
be tax neutral either on capital export or on capital import. Developed
countries tend to favour capital export or domestic neutrality, under
which the taxpayer’s choices between investing at home or abroad
remain unaffected (i.e. world efficiency). On the other hand, developing
countries generally prefer capital import or competitive neutrality to
ensure that the investment decisions of domestic and foreign investors
in their country are on par (i.e. national efficiency).
The fairness and efficiency of tax systems depend not on the tax laws of
any one country, but on the cumulative effects of the tax laws of all
countries. As there is little global tax harmonization, domestic tax
systems often conflict on cross-border transactions and lead to excessive
taxation. Countries are at differing levels of social and economic growth
with varying fiscal needs. Each country applies its own taxing rules to
transactions connected with its jurisdiction. The lack of a common view
on international tax principles creates economic distortions and also
encourages international tax competition.2 International taxation
attempts to resolve these conflicts through the principles of
enforceability and reciprocity. Countries may have unlimited rights of
taxation over a person or object but they cannot normally enforce them
outside their own jurisdiction. Therefore, they must respect the
reciprocal taxing rights of other countries and co-operate with them to
evolve rules of taxation that meet their mutual fiscal objectives.