Nobody should dabble in international tax. It is hugely complicated, and should be handled only by attorneys and accountants who specialize in it. Incredibly few do. Gary Tober here in Seattle is one who does and he has a great reputation. All of this is a preface for the fact that a reader just emailed me a copy of an article on the US-China tax treaty and asked me if “this guy Tober knows what he is talking about.” I wrote back, saying “yes” and I am now linking over to this article, entitled, “US Taxation of a Foreign Person’s US Activities and Income Tax Treaty Between the People’s Republic of China and the United States.”

Go ahead and read this, but do NOT act without first hunting down and consulting with a legitimate international tax lawyer or international tax accountant familiar with the tax laws of your home country and China and the interaction between those laws.

As a tax lawyer I, of course, agree wholeheartedly with Dan’s comments.   However, that was not what caused me to write this post. Rather, it was one of the comment to the post which caught my attention. A person named Paul White made the following comment:

Dan I think you actually mean a tax specialist familiar with US GAAP and China GAAP, with additional experience in how US IFRS and SOX regulations impact on China subsidiaries, not an “international tax lawyer” or “international tax accountant”. The latter usually specialise in offshore trust work and would have no idea of China. Most of the large US tax firms have US/China GAAP people in position inhouse now, as well as the bigger ones in China handling American MNC’s.

Given how dated this comment is, I have tried all week to resist writing a post on this comment. However, unfortunately my perversive side has won over. Also,  I think the concept of “international tax lawyer” can be somewhat elusive and worth discussing.

Do all international tax lawyers and accountants only provide services in relation to off-shore trust work?

Well I guess this depends upon how you define the term “international tax lawyer”.  My definition of international tax lawyer is a lawyer who provides services in respection of international taxation – therefore what constitutes an international tax lawyer depends on how you define “international tax”.

In defining the concept of international tax, I cant go past Michael Graetz (probably the foremost expert on international tax policy) who said that the ‘basic task of international tax rules is to resolve the competing claims of residence and source nations’. [1] Accordingly, international tax laws are those rules that delineate a country’s taxation of cross jurisdictional income. This includes transfer pricing provisions, thin capitalisation issues, tax residency questions, income source etc.

Accordingly, I consider an international tax lawyer to be a lawyer who regularly gives advice on such rules. Whether that lawyer is an expert in another country’s tax laws is not relevant. Just as with international trade lawyers, who dont have a detailed understanding of the trade rules of each country, international tax lawyers dont know the tax rules of each country back to front. However, international tax rules, as with trade laws, are sufficiently similar that, for example, a US tax lawyer with expertise in international tax (a US international tax lawyer) will know what the issues will be and know when such issues are sufficiently complex such that questions need to be asked from appropriate professionals in other jurisdictions. That is, ultimately, all one can ask.

Basically, any multinational company will face international tax issues in respect of their cross-border business. In as much, they will likely require advice as how to efficiently structure their affairs to avoid a higher than necessary imposition of tax. Accordingly, there are plenty of tax advisers out there who routinely give international tax advice who dont fall within the characterisation of a specialist in off-shore trusts. I rarely give advice on off-shore trusts but consider the majority of the advice I give to be international tax advice.

Further, given that the client was referring to an article on the US-China DTA, I cant see how the interaction between two sets of accounting principles was the relevant the issue. Before we worry about accounting principles, which assist in determining the requisite amount of taxable income, the first issue is to establish liability. In terms of Chinese investing in the US, the first point to start is to look at both the domestic tax laws of the respective countries to determine how they treat the income and then to look to the DTA to see whether it alters the standard position. In many cases, the DTA will prevent one country from exercising its taxing rights over certain income. Domestic tax specialists have little experience in interpreting international tax provisions of domestic tax laws and DTAs hence why Dan was right to discuss tax lawyers with experience in international tax issues. Once it is established that there is liability for taxation in the US for a Chinese company, then the issue of the interaction between accounting principles will become relevant.

Ultimately I guess it is a question of definition and labels. I dont like the term “international tax lawyer” anyway and prefer to say that I am a tax lawyer with expertise and experience in international taxation issues.

Note: Dan was also right that there are not a lot of lawyers, even not that many tax lawyers, with experience and knowledge of international tax. This is because the largest portion of the tax industry in most countries is focused on domestic tax issues – in  my early days in a tax practice in Sydney it was made clear to to me that the firm didnt consider it worthwhile to establish an international tax practice.

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[1] M J Graetz and M M O’Hear, ‘The ‘Original Intent’ of US International Taxation’ 46 DukeLaw Journal 1021.