Introduction:
In many ways, international payments are like domestic payments. They involve a payer using the services of 1 or a lot of intermediaries to transfer price to a payee. However, they tend to involve a variety of additional complexities as a result of the gap between the parties, the various time zones and currencies, and the need for additional intermediaries. This has led to the event of the development payment facilities especially business for the wants of users of international payments[1].
Hundreds of thousands of international payments are created every second of every day by businesses. Business-to-business payments are primarily related to supplier payments associated with the import of goods and services. Despite the potentially large number of international payments related to international trade and commerce, the method of transmittal cash cross borders stay extremely complex, not simply in terms of routing payment( however conjointly in terms of handling and spending payments between stakeholders within the transaction chain correspondents).
Since International payments involve contacts with different 2 completely different states and their individual legal system, it is intuitive that they raise issues of conflicts of laws. Anybody even superficially aware of private international law would be fast to understand that such problems are bound to be various and complex. However, it is shocking that despite the amount of international payments created every day around the world and the likelihood of disputes liable to raise conflicts issues, each the case laws and literature on these problems are quite scary,
As per the definition, an “international funds transfer occurs when either the payer’s or the payee’s bank, or both banks, are in a country other than that of the currency of the transfer.”[2] For our purposes, an international payment is where at least two of the major players in the payment deal are in different countries”.
History and Emergence of International Payments[3]
Well-defined as the instruction to relocate funds between the payer and payee bank accounts or organizations located in different countries, international payments have come up to a long way since the lengthy deliberations over amounts of gold that happen more than two thousand years ago from traveller’s letters of credit exchanged in the initial days of international travel or commercial trading. The state of modern international payments landscaped is largely an outcome of two major series of trials in the twentieth century- the aftermath of World War II and the escalation of technology. “In 1959 the first banking industry computer, which read cheques through MICR (Magnetic Ink Character Recognition), came into use. 9 years later in 1968 the Inter-bank Computer Bureau (which became Back in 1971) where the electronic transfer of funds between banks possible”.
“Finally, in 1973 the Society for Worldwide Inter Bank Financial Telecommunication (SWIFT) was formed with the intention of creating a standard design and language for international financial transactions via a contribution to global data processing and communication links” (the first Swift message was sent in 1977). As an outcome of these technological advancements and countless more since international payments have come to be a vital part of the business for many companies worldwide. However, due to the additional complexities correlated with different laws, currencies and time zone, unique payment facilities and processes have been created by financial institutions to cater for cross border transfer.
Role and Scope of International Payments[4]
The heightened globalisation of the Australian economy has resulted in a greater requirement for international payments. Import and export businesses require access to international payment methods, as do consumers who buy goods and services directly from foreign dealers. Travellers to and from Australia also need access to international payments, whether their travel is for the targets of a short-tern holiday or a longer-term relocation. It is not possible to give precise numbers for the size of the Australian market for international payments.
However, certain implications can be drawn from connected foreign exchange (FX) and inter-bank payment data. The daily turnover in the Australian FX market is around $211 billion.6 Even Though this is broader than just international payments, it gives one an idea of the size of the payments market. “Australian users of SWIFT7 (the leading international payment messaging system) sent around 42 million SWIFT payment messages between themselves in 2005[5],8 up from around 20 million in 1998.9 11 Australian official deposit-taking institutions (ADIs) are associates of SWIFT, and nearby are 88 other Australian participating institutes (e.g. other financial institutions and large corporations)”.
Basics of International Payments[6]
As with a domestic payment, the key participants in an international payment are the sender of the payment (the payer) and the recipient of the payment (the payee). The payment could correlate to a pre-existing debt commitment (i.e. paying interest on a loan), an essential goods and services transaction, or can even be a gift or transfer of funds to family oversea
In practically all cases, the payer and payee use the services of financial institutions to impact an international payment. Both may use the same financial institution (e.g. a bank), however more often in international payments, each one uses a financial institution based in their country of residence. This often requires the involvement of one or more correspondent institutions, to facilitate the transfer of funds among the payer institution and the payee institution. Again, in roughly all cases, the international payment is achieved by the adjustment of the balances of the accounts the payer and payee hold with their respective financial institutions.
This is sponsored by one or more ‘settling’ transactions between the financial institutions, often also involving the adjustments of account balances of those institutions with one or more further institutions (i.e. correspondents or central banks). Generally, international payments rely heavily on the law of agency and contract. [7]The financial institutions act as agent for their respective customers, go after the customer instruction (mandate) in sending or receiving the payment. Agency law delivers much of the ‘flesh’ around the legal rights and obligations of the parties, such as the duty to abide by the terms of the mandate.
Contract law, agency law and mandate are considered in detail in the second article. Some international payments operate using flexible instruments, such as bills of exchange or documentary credits. In this author’s point of view, the underlying payment and settlement are still accomplished by account-based funds transfers. The mechanics of the transaction are quite unique, as the instructions are drafted and communicated in a form with its own unique legal characteristics and peculiarities. Documentary credits are considered in further detail below. For present principles, however, they are funds transfers utilising a different legal structure and methodology.
The Legal Problems of International Payments[8]
Designed for the purpose of this analysis an international payment is one of two types of transactions. The first category described a credit allocation in the terminology of the UNCITRAL model law. This is the deal whereby funds are transferred at the initiative of one party (originator) to go on to use the model law’s terminology to an alternative party(beneficiary) through one or more bands or other financial agents.
The second category of international payment is a debit transfer, where the payment is made in accordance with an order offered by the beneficiary for the payment of the holder of the payer’s resources in accordance along with the prior authorization by the payer. In other comments, a credit transfer is a debtor- initiated, whilst a debit transfer is a creditor- initiated. However, there is one especially significant difference. Also with regard to domestic payment, the rule and answers may not necessarily be clear, but there is at least certainty as regards to the legal system within which they are to be kind, this being noticeably one of the countries with which the payment has its only contact. Even this certainty is lacking with regard to international payments.
Ever since there is no single set of guidelines dealing(automatically or prima-facie) with the whole international payments, or for that matter with any given international payment, at least in theory each payment can be scrutinised from the perspective of more than one legal system. The result is that there is no single solution to any of the problems. It is thus obvious that whatever attempt to seek the solution of any specific legal problem arises from an international payment must be preceded by conflicts of laws analysis targeted at spotting the legal system or systems against the backdrop of which the payment is to be viewed. Despite this scarce attention devoted to it, perhaps because of its apparent abstruseness, private international law plays a vital role in the context of international payments.
Common International Payment Facilities[9]
Australian-sourced international funds transfers are mostly influenced through cross border correspondent banks. The communications or messaging method varies. Over time it has evolved with the general underlying technology, from the telegraph and tested telex to electronic messaging systems like SWIFT being the most common method today. SWIFT is explained in more detail below.
International payments can take a few forms. They include.
- foreign cash payments,
- travellers’ cheques and cards,
- credit, charge and debit cards,
- cheques, drafts and money orders,
- formal and informal remittance systems,
- electronic funds transfer, and
- online payment systems (e.g. PayPal).
Understanding International Payments with Latest Case Laws[10]
- In the case of Aromatic Overseas Company B V In re, it had been agreed that any and every single person who is some way or the other facilities purchased by a non-resident for the purpose of export cannot be taken within the ambit of clause (b) of explanation 1 to 9 (1)(i). When assesses accepts only net proceeds as per export invoice, there is nothing further left over to be treated as income received or to be received or accrued or deemed to be enlarged or arising in India or else outside India. The profits from the offshore supply contracts held not to be liable to tax in India on the ground that the transfer of title in the goods has passed outside India. Such As no operations qua the deal for supply of equipment were carried outside India, no income be able to be deemed to have occurred or occurred in India whether directly or indirectly or all through any business contracts in India
- In the brief case of Mahindra and Mahindra Ltd it had been held that underwriting commission had paid to lead managers to the problem of global depository receipts “by Indian party, are business profits which are not chargeable in lack of long-lasting establishment in India”. There were no reimbursement of expenses and no element of profit and hence was not taxable. “Alike decision was given in DY DIT v Tata Iron & Steel Co Ltd” where it had been held that services rendered by non-resident lead managers to the evaluate company for bringing out GDR issue, though in the nature of technical or managerial services, were not “made available” to the assesses and therefore cannot be taxed in India. Underwriting commission was neither fees for technical services under section 9 (1)(iv) nor chargeable to as “business profits” under article 7 of DTAA in the absence of any PE of the non -resident in India, payment towards reimbursement of expenses not being in the nature of income was not taxable.
- “ In the assessment of article 9 (1) of DTAA among India and UK, freight revenue earned by non- resident assesses on account of transportation of cargo in international traffic by ships ran by other enterprises under slot chartering, arrangements would be taxable only in the state of residence and consequently, such income would be exempt from taxation under Indian Income Tax Law”. AAR in the brief case of Seabird Exploration FZ LLC, UAE, In re it was held that mere physical presence of non- resident’s vessel in territorial waters of India pursuant to the hiring of a vessel on Bareboat Charter terms by the applicant does not, deprived of anything more, constitute a permanent establishment. Where the agreement was executed outside India and delivery of vessel also took place outside “India by reason of mere presence of the vessel in India without violation of VPC, basis of income cannot be said to be located in India and to this extent, hire charges paid by the applicant are liable to be excluded from taxable profits of VPC”
Conclusion
We can see that international payments have much in common with domestic payment. Indeed, a few the most popular retail and corporate domestic payment facilities are also used, with minor adaptations, for international payments. The credit card network is a prime example of this.
This paper has shown that like domestic payments, international payments use the services of one or more institutions to transfer value from the payer to the payee. Throughout history, international payments have relied upon a network of trusted
International payment systems tend to involve a few additional complexities because of the distance between the parties, the different time zones and currencies, and the need for additional intermediaries. The next article examines the legal structure of international payments in detail. It analyses international payments from a legal perspective, looking at a few key issues in-depth such as payment mandate,
References:
[1] Sanskriti Singh, Aishwarya Sharma,Problems of international payments (Mar-Apr. 2014), IOSR Journal of Economics and Finance (IOSR-JEF)
[2] Rhys Bollen 2007, The history and operation of international payment system, (SSRN2007).
[3] Tyree Dr A, Banking Law in Australia (5th ed, Butterworths, 2002) at [12.26]
[4] Reserve Bank of Australia (RBA) statistics, RBA website, (www.rba.gov.au/Statistics/AlphaListing/alpha_listing_f.html, accessed 14 October 2006)
[5] SWIFT annual report 2005, p22, (www.swift.com)
[6] Rhys Bollen 2007, The history and operation of international payment system(, SSRN2007).
[7] Brindle and Cox, Law of Bank Payments, at 107
[8] Rhys Bollen 2007, The history and operation of international payment system, (SSRN2007).
[9] Sanskriti Singh, Aishwarya Sharma,Problems of international payments (Mar-Apr. 2014), IOSR Journal of Economics and Finance (IOSR-JEF)
[10] Rhys Bollen 2007, The history and operation of international payment system, (SSRN2007).
0 Comments