handbook-tb

Taxation of non-residents’ capital gainsallowing the taxpayer to use a tax cost for the asset in the new residenceState equal to its market value at the time of the change in residence. 99Trailing taxes are taxes levied after a change of residence on assetsthat would normally not otherwise be taxed in the hands of a non-resident,but that are usually taxed under domestic law if alienated withina given period following the change of residence (generally five to tenyears). A country may provide for both a trailing tax and an exit tax if ataxpayer has an election to be subject to the exit tax or remain liable totax for the full gain realized on actual alienation following the change ofresidence. Special treaty provisions may also be needed to preserve thetaxing rights of the former residence State and prevent double taxation.8. ConclusionThroughout the discussion in the present chapter, it has not beenassumed that revenue from taxing non-residents on capital gains isindispensable to many developing countries. 100 Such an assumptioncould very well turn out not to be true. For example, in many of thedeveloping countries that recently led efforts to combat base erosion bytaxing indirect transfers — for example, China, India, Indonesia, Peruand others — revenue from international taxation in general (not tomention from capital gains taxation of non-residents in particular) islikely to represent a very small portion of overall tax revenue. The pursuitof such base protection measures is thus likely to be motivated byother policy considerations, for example, for maintaining the integrityand fairness of the tax system. Insofar as the administrative apparatusof a developing country can handle such taxation in the normal courseof its operation, there should be little that is out of the ordinary.99Indeed, under its domestic law, Australia deems a person who becomesa resident to acquire assets other than taxable Australian assets at marketvalue on becoming a resident. Canadian rules are largely similar.100This can be contrasted with a view expressed in the recent IMF SpilloversReport, whose discussion of capital gains taxation — and the taxation ofindirect transfers in particular — was motivated by its technical assistanceexperience, which “provides many examples in which the sums at stake ininternational tax issues are large relative to overall revenues [of developingcountries].” See IMF Spillovers Report, supra note 7, at 1.153