Tax discrimination against non-residents of a country

Active prejudice towards taxable non-residents
Preferential treatment towards residents against non-residents regarding taxes

Nature

Countries may introduce special taxes which are theoretically applicable to both resident and non-resident enterprises but which in practice impinge almost exclusively on the profits of the non-resident. Examples are: special taxes on profits when dividends are not paid within the country; special taxes on profits when a certain proportion of shares are not owned by residents; special tax on that part of the profits remitted out of the country; denial to non-resident companies of any rebate of tax on profits.

Background

Tax discrimination against non-residents emerged as a significant global concern in the early 20th century, as cross-border migration and international investment increased. The problem gained prominence with the rise of double taxation disputes, prompting the League of Nations to address it in the 1920s. Subsequent decades saw the OECD and United Nations develop model tax conventions, reflecting growing international recognition of the need to prevent discriminatory tax practices targeting non-resident individuals and entities.

Incidence

Tax discrimination against non-residents is a persistent issue affecting millions of individuals and businesses globally, particularly in countries with significant cross-border economic activity. Non-residents often face higher tax rates, limited deductions, or exclusion from tax benefits available to residents, impacting international mobility, investment, and labor markets. This problem is especially pronounced in regions with large expatriate populations or substantial foreign direct investment, making it a matter of international concern.
In 2022, the United States Internal Revenue Service (IRS) faced criticism for imposing higher withholding taxes on non-resident investors compared to residents, particularly affecting foreign holders of U.S. securities and real estate.

Claim

Tax discrimination against non-residents is a grave injustice that undermines the principles of fairness and equality. By imposing harsher tax burdens or denying benefits to non-residents, countries exploit individuals who contribute to their economies. This practice not only discourages global mobility and investment but also fosters resentment and division. Addressing tax discrimination is essential to uphold human rights, promote international cooperation, and ensure a just global economic system.

Counter-claim

Tax discrimination against non-residents is hardly a pressing issue. Countries have every right to prioritize their own citizens and residents when it comes to tax policy. Non-residents benefit from local infrastructure and services far less, so expecting them to pay the same rates is unreasonable. With so many urgent global challenges, worrying about non-resident tax treatment is a distraction from real problems that actually impact people’s lives in meaningful ways.