handbook-tb

Taxation of income from servicesamount is paid (or shortly thereafter) on the full amount paid withoutthe deduction of any expenses incurred in earning the income. If thetax is imposed on the net income earned by non-residents, generallythe same computational rules (amounts deductible, timing, etc.) applythat apply to business income earned by residents of that country.However, several South American countries as well as India impose awithholding tax on a presumptive amount of income derived by nonresidents.32 The presumed amount is a percentage of the amount ofgross payment to the non-resident. The justification for this presumptivetax base is to provide some standard relief for the expenses thatmight typically be incurred by non-residents in providing the services.The presumptive tax base eliminates the need for taxpayers to keeptrack of their actual expenses and for the tax authorities to verify thoseexpenses. The same result can be achieved — although not as transparently— by reducing the rate of withholding tax so that the tax imposedapproximates the tax that would be payable if a non-resident’s actualnet income were taxable at the ordinarily applicable rates.Although many developed countries provide an election fornon-residents to pay tax on a net basis with respect to certain incomefrom services, developing countries do not generally do so due to inadequateadministrative resources. 33 Similarly, few developing countries32Argentina and Uruguay use this presumptive income approach extensively.See Alejandro Almarza, “Argentina,” in International Fiscal Association,“Enterprise Services,” in Cahiers de droit fiscal international, supranote 7, at 74 – 76; and Luis Aisenberg and Alejandro Horjales, “Uruguay,” inInternational Fiscal Association, “Enterprise Services,” in Cahiers de droitfiscal international, supra note 7, at 739. The approach is also used in severalother countries (including the Bolivarian Republic of Venezuela, India andPeru) although it is applied to a narrower range of payments for services. Forexample, in India non-residents providing construction, air transportation,shipping, prospecting or extraction of oil services are, respectively, taxableon 10, 5, 7.5 and 10 per cent of the amounts receivable for such services. SeeSaurav Bhattacharya and Dhaval Sanghavi, “India,” in International FiscalAssociation, “Enterprise Services,” in Cahiers de droit fiscal international,supra note 7, at 359 – 60.33Uruguay provides an election for corporations earning income fromtransportation, films and television and international news. See Luis Aisenbergand Alejandro Horjales, “Uruguay,” in International Fiscal Association,“Enterprise Services,” in Cahiers de droit fiscal international, supra note 7, at 739.61