Chapter 7
THE INTERNATIONAL UNION OF TAXATION
Content
• General knowledge
• Custom union
• The int’l union for the avoidance of double
taxation
7.1. GENERAL KNOWLEDGE
• Concepts
• Principals and rules on imposing taxes on
international economic relations
• Regulations on dealing with international
economic relations.
• Forms of the international union taxation
7.1.1. Concepts
The international union of taxation is
defined as a commitment of two or more nations
to create reasonable tax agreements on exchange
products, services, capitals and incomes that
ensure economic relations of countries to be run
smoothly, following ordinary principles of the
international economic cooperation.
7.1.2. Principles and rules on imposing taxes
Origin principles - OP
Destination principle - DP
Residence principle - RP
Resource principle – RSP
?/ What are they? Which does Vietnamese tax
law use the above principle?
7.1.3. Regulations on dealing with int’l economic relations
• Non-discrimination principle – NT
• Most Favored Nation - MFN
• General preferential system – GSP
=> All WTO member countries are entitles to the
MFN principles, but if members are developing
countries, they will be entitled to the additional
GSP
7.1.4. Forms of the international union of taxation
• Number of partners: Bilateral and multilateral
alliances
• Kinds of tax union: Custom union and double
taxation avoidance union
7.2. CUSTOM UNION
• Tariff
• Custom union
7.2.1. Tariff
Tariff is defined as a type of tax imposed
on goods or services at the border when such
goods and services are moved in or out of a
country
Types of tariff
• Method of imposing tariff
Ad-valorem tariff: expressed as a
percentage of the value of the imported good.
Specific tariff: the amount of money a
resident must pay to the government on each
physical unit of imported goods.
Mixed tariff: a combination between the
two above.
Types of tariff
• Purposes of imposing tariff
Fiscal collection: Create revenue for state
budget
Protection: Protect the domestic production
(Infant industries)
Negotiation: Protect the domestic production
and bargain when negotiating trade issues with other
countries.
Penalizing: Deal with discrimination of tariff
treatments of importing countries.
Impacts of tariff
- “Small opened economy” : A trading economy in which
export and import of a specific product takes a very small
part of total world supply.
Þ Has no effect on the international price
- “Large opened economy” : A trading economy in which
export and import of a specific product takes a significant
part of total world supply.
Þ Has significant effect on the international price
Impacts of tariff – Small opened economy
P(Price)
S
E0
P0
0 Q0
Q(Quantitative)
Impacts of tariff – Small opened economy
- For the consumer
- For the producer
- For Trade
- For collecting revenue
- From redistribution aspect
Impacts of tariff – Large-opened economy
P (Price)
S
Pw = P0 D
Q(Quantitative)
0
Q0
Impacts of tariff – Large-opened
economy
- For the domestic consumer
- For the domestic producer
- For the importer
- For the foreign trade activity
- For the revenue collection
- For income distribution
Roles of tariff
• Create revenues for the state budget in
developing countries
• Protect domestic production
• Redistribution of income between domestic
producers and consumers
REVIEW
X, a kind of goods sold in the Vietnamese local market (small opened economy), is
illustrated as below:
Qs = 4P – 16; Qd = 47-3P
(Qs, Qd: million ton; P: 1012 VND/mil ton).
Imported unit cost per mil ton of X (CIF) is 4.8 x 10 12VND/mil ton.
Available domestic price of X is 6.0 x 1012VND/mil ton
How much is the profit/loss of domestic customer?
A. Loss – 36.96x1012VND
B. Profit – 36.96x1012VND
C. Loss – 36.69x1012VND
D. Profit – 36.69x1012VND
REVIEW
X, a kind of goods sold in the Vietnamese local market (small open economy), is
illustrated as below:
Qs = 4P – 16; Qd = 47-3P
(Qs, Qd: million ton; P: 1012 VND/mil ton).
Imported unit cost per mil ton of X (CIF) is 4.8x10 12VND/mil ton.
Available domestic price of X is 6.0 x 1012VND/mil ton
How much is the protection cost?
A. 2.88x1012VND
B. 3.11x1012VND
C. 2.98x1012VND
D. 3.02x1012VND
REVIEW
X, a kind of goods sold in the Vietnamese local market (small open economy), is
illustrated as below:
Qs = 4P – 16; Qd = 47-3P
(Qs, Qd: million ton; P: 1012 VND/mil ton).
Imported unit cost per mil ton of X (CIF) is 4.8x10 12VND/mil ton.
Available domestic price of X is 6.0 x 1012VND/mil ton
How many tons of X is protected by tax?
A. 4.8 mil ton
B. 2.4 mil ton
C. 3.6 mil ton
D. 4.5 mil ton
REVIEW
Last year, the exporter capacity (Y product) of Vietnam to a large open economy was
illustrated as Qs = 35x(P-250), Qs: ton; P: USD/ton. The world price of Y was
735USD/ton. The imported tax on Y from Vietnam is 15%.
Calculate turnover of the Vietnamese producer.
A. 8,704,663 USD
B. 8,740,366 USD
C. 7,895,430 USD
D. 7,859,340 USD
REVIEW
Last year, the exporter capacity (Y product) of Vietnam to a large open economy was
illustrated as Qs = 35x(P-250), Qs: ton; P: USD/ton.
The world price of Y was 735USD/ton.
Government B imposes an anti-dumping duty on goods from Vietnam as below:
- Tax rate of 30% for some enterprises accounting for 25% of export
- 35% tax rate for some enterprises accounting for 20% of total exports
- 40% tax rate for some enterprises accounting for 45% of total exports
- 45% tax rate with remaining enterprises.
Define the tax rate.
A. 37%
B. 35.5%
C. 23.5%
D. 36.75%
REVIEW
Tariff is defined as a type of tax imposed on:
a. Imported goods
b. Imported services
c. Exported goods
d. All of the above
REVIEW
Assume ceteris paribus, when a small open economy imposes tariff on imported
goods X, the price of X in that economy will increase.
a. True.
b. False.
REVIEW
Assume ceteris paribus, when a small economy imposes tariff on imported goods X,
the consumer surplus of the scale of goods X in that economy will:
a. Decrease
b. Increase
c. Remain unchanged
REVIEW
Assume ceteris paribus, when a large open economy imposes tariff on imported goods
X, the price of X in that economy will increase
A. True.
B. False.