Currency risk and OECD model tax convention: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Layout.)
 
imported>Doug Williamson
(Create the page. Source ACT CertFin CT 3.1.1 pages 10 to 11.)
 
Line 1: Line 1:
The risk that arises from a change in currency rates.
''Tax''.


This can take the form of:
Companies often operate in a number of different countries and, as a result, may be resident in more than one country under the different domestic tax laws of each country.
#A receipt/payment of more or less home currency than expected when a transaction is settled (transaction risk)
#A change in asset/liability values in a balance sheet, profit /loss in an income statement (translation risk), or
#A change in competitiveness as rates change relative to buyers, suppliers or competitors (economic risk).


A more complex area of risk concerns contingent, or pre-transaction risk.
Many developed countries have entered into bilateral international tax agreements, known as double tax treaties, with other countries. Many, but not all, of the tax treaties follow the OECD model tax convention.  


Also known as Currency exposure or Foreign exchange risk.


The OECD model convention provides a basis that can be used to draw up a bilateral tax agreement between two states, that seeks to eliminate double taxation. Double tax treaties also help to encourage cross border trade.


== See also ==
* [[Contingent risk]]
* [[Cross-currency interest rate swap]]
* [[Foreign exchange risk]]
* [[Transaction exposure]]
* [[Translation exposure]]


The OECD model tax convention contains a 'tie breaker' clause that determines a company’s tax residence for the purposes of the treaty.
This is taken to be the place where ‘effective management’ and control (POEM) is carried on. In a tie context this test requires a review of where the day to day management of the company takes place.


===Other links===
[http://www.treasurers.org/node/5281 Currency risk, Will Spinney, ACT 2009]


[[Category:Manage_risks]]
== See also ==
* [[Double tax treaties]]
* [[Double taxation]]
* [[Organisation for Economic Co-operation and Development]]
* [[Permanent establishment]]
* [[POEM]]
* [[Profit shifting]]
* [[Residence]]

Revision as of 09:54, 24 May 2015

Tax.

Companies often operate in a number of different countries and, as a result, may be resident in more than one country under the different domestic tax laws of each country.

Many developed countries have entered into bilateral international tax agreements, known as double tax treaties, with other countries. Many, but not all, of the tax treaties follow the OECD model tax convention.


The OECD model convention provides a basis that can be used to draw up a bilateral tax agreement between two states, that seeks to eliminate double taxation. Double tax treaties also help to encourage cross border trade.


The OECD model tax convention contains a 'tie breaker' clause that determines a company’s tax residence for the purposes of the treaty.

This is taken to be the place where ‘effective management’ and control (POEM) is carried on. In a tie context this test requires a review of where the day to day management of the company takes place.


See also