handbook-tb

Wei Cuias discussed above, there is no clear difference between immovableproperty and business assets in their ability to generate capital gains.What is different is that foreign ownership of domestic immovableproperty has traditionally been politically more sensitive than foreignownership of other domestic assets. It may be this political significance— rather than anything to do with revenue potential, the easeof tax administration or the need to rationalize tax systems — that haselevated immovable property to the status of an “especially taxable”asset class in the international tax arena. 22 Although this source ofpolitical legitimacy for the taxation of non-residents on capital gainsmay still be relevant, tax systems in the twenty-first century typicallyrely on a wider range of justifications, having to do with budgetaryneeds, efficiency, fairness and administrative requirements. These justificationsmay well point to the taxation of a wider range of capitalgains realized by non-residents.3. Non-administrative design issues in taxing nonresidentson capital gains3.1 Gross-income versus net-income approachesUnder their domestic laws, countries may tax income earned fromsources within them by non-residents on either a net- or a grossincomebasis. Under net-income-based taxation, non-resident taxpayersare treated in many ways like residents: they file income taxreturns on a periodic basis; report income from different sources andof different types, as well as expenses that are associated with the variousitems of income and allowable as deductions; and are subject totax rates generally applicable to domestic individuals or corporations.Under gross-income-based taxation, by contrast, non-resident taxpayersmay not need to file a tax return at all: the tax imposed by theTransfers: Improving an Instrument for Stemming Tax and Legal Base Erosion,”(2014) Vol. 33, Virginia Tax Review, 649.22This is not to say that foreign ownership of domestic real estate is notpolitically sensitive in developing countries. Indeed it may be so sensitive thatit is prohibited outright — in which case the issue of taxing non-residents oncapital gains from selling domestic real estate also becomes irrelevant.118