Limits to Tax Planning

S. 185 1. Introduction

For an analysis of tax planning and its limits to being comprehensive the discussion should not stop at the assessment of taxes but should also include tax collection as the final phase of taxation. A tax system can, moreover, only be considered fair if it guarantees that the assessed tax is collected. But not all taxpayers pay taxes voluntarily. Enforcement is, however, usually limited to taxpayers subject to the jurisdiction of the state whose taxes are at stake, i.e. its residents or citizens. In a more and more globalized world cases in which taxes become due in a different state have increased tremendously. To prevent taxpayers not subject to their jurisdiction from circumventing paying their taxes, states have several possibilities, in particular the collection of taxes at source ‒ which is subject to their jurisdiction ‒ or a request for assistance of the other state, the jurisdiction to which the taxpayer is subject.

2. Difficulties of tax collection in another jurisdiction

Under international law, states have to observe certain limits. They can only legislate and enforce their legislation within their territory and only they can legislate and execute this le...