2. In the concept of responsible government (as elaborated in the basic premise of the
relationship or the political contract), the fundamental justification for a government
levying taxes (or demand contributions) on taxpayers is the services provided by the
government to community members.
◦ According to the doctrine of economic allegiance those who benefit from government
services are obliged to fund the government and, on the other hand, a government has no
justification/ jurisdiction to tax unless there is an appropriate/ recognized basis of economic
allegiance.
◦ The bases of economic allegiance are now called connecting factors- a sufficient connection
between a person deriving income and that state.
◦ The question is what sort of connection with the person is sufficient for this purpose? Is that
presence, residence or domicile, citizenship or nationality? Some of these possible
connections are more substantial and formal than others.
◦ If the source of the taxable activity is known to be a particular state, that’s simple.
◦ In addition, Residence is generally accepted as an appropriate connection as it is not too
fleeting, as mere presence may be, and is not too formal, as citizenship/ domicile may be.
Meaning, a person may be present in a particular state but not receive any substantial
government services. The same may be argued with respect to citizenship, where the person
is not living within the state of citizenship.
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3. As members of communities are mobile and may receive services from governments
other than their own, a person may simultaneously owe economic allegiance to more
than one state, i.e. divided allegiance.
This raises two fundamental problems:
◦ This raises the potential for a double or multiple imposition of income tax and questions as
to whether double taxation is appropriate and, if not, how any relief should be organized.
◦ If states are reluctant to enforce expecting the other will do, it will open a room for sever tax
shelter or tax haven practices.
Hence, domestic laws, customary international law, treaties, etc have to particularize
the connecting factor that the country use to impose tax.
In order to impose and collect income tax from an individual or corporation, there
must be a minimum connection between the subject of taxation and the taxing power.
Countries follow different principles but in modern taxation, the extent of income-tax
jurisdiction is essentially determined by two main criteria: the residence of the
taxpayer and his source of income.
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4. In Ethiopia, art. 7 of the ITP provide source and residence as
connecting factors: it has global jurisdiction on residents whereas it has
a source jurisdiction on non-residents.
The issue of source is clear an economic unit who generate income in
the territory of a state has a legal obligation to pay tax.
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5. When a taxpayer (individual or body) can have a status of resident for the purpose of
income taxation?
◦ An individuals who: (art. 5 (2-4))
Have domiciles within Ethiopia
Is a citizens of Ethiopia who is consular, diplomatic or similar officials of
Ethiopia posted abroad
Present for more than 183 days (in 12 months) continuously or intermittently.
◦ A body which: (art. 5 (5))
Have their place of effective management in Ethiopia
Is formed/ incorporated in Ethiopia
What are the sources of income art. 4, 6 & 8
Employment, lease, business or other incomes that is classified in to five
schedules.
A business conducted by the non-resident through a permanent establishment.
Have a permanent establishment (of a non-resident person in Ethiopia)-2(9)
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6. In applying the two factors a single taxpayer can be subjected to double
and concurrent income taxation by overlapping governmental
authorities.
◦ This situation is increasingly frequent with the growth of international
contacts and the expanding financial needs of states.
◦ It discourages investment, trade and other transnational economic
transaction.
◦ For the best interest of world economy, states provide unilateral, bilateral
and multilateral Solutions.
◦ Ethiopia, with a view to encourage foreign investment and unilaterally
alleviate the problem of double taxation, introduced the concept of foreign
tax credit. See chapter 5 (art. 45-48) of the ITP.
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7. Case Summarizing
◦ The Famous ‘Agassi V Robinson Case, House Of Lords, 2006’
agasro.pdf
Refer (Peter Harris and David Oliver, International Commercial Tax,
Cambridge University Press, 2010, Pp.43-46)
Instructions
◦ Briefly report the case and argue whether a different verdict would have been
pronounced, had the court consulted ITP No. 979/2016.
◦ Page limit: 3
◦ Due date: 15/11/2017
◦ Submission type: email delivery (misgepower@gmail.com )
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