For example, an American company operating in a developing country, in the absence of a tax treaty between Double taxation essay two countries may have to pay a withholding tax to the government of the developing country, as well as corporation tax to the United States government Howard,p.
Foreign tax paid dividend withholding tax and corporate income tax on the original profits can be deducted against domestic tax due. Countries that are purely on exemption system are often referred to as "tax havens" because the country does not tax any foreign source income FSI earned by individuals or corporations that have that country as their home country Stephens, Each country applies its own taxing rules to transactions connected with its jurisdiction.
On the other hand, developing countries generally prefer capital import or competitive neutrality to ensure that the investment decisions of domestic and foreign investors in their country are on par i. They are internationally binding obligations between sovereign States not taxpayers under public international law.
This exchange may be on request or spontaneous. This double taxation may be economic or juridical. Most tax havens are developing countries where governments believe that tax haven status would accelerate their rate of economic growth Howard,p.
In addition, several countries have separate limited bilateral treaties for shipping and aircraft activities. In juridical double taxation, two or more States levy their respective taxes on the same entity or person on the same income and for identical periods.
Many of them follow the guidelines provided by the OECD.
These measures prevent companies from avoiding current taxation in the Residence State through the accumulation of taxable income abroad, particularly in low tax jurisdictions. International taxation attempts to resolve these conflicts through the principles of enforceability and reciprocity.
Under these rules, interest payments in thinly capitalized companies is disallowed and even taxed as constructive dividends.
Anti-haven or anti-deferral measures: In particular, they require that transactions should not have tax saving as their only or dominant purpose. Essay on the Double Tax Treaties: Tax-credit systems have been implemented in the United States, OECD countries, and newly industrialized economies in which investment taxes paid to foreign countries can be deducted at home if the home tax rate exceeds the foreign tax rate.
Although tax mitigation is not the prime objective in many cases, international financial centres provide tax benefits in offshore transactions i. Interest expense is tax deductible, whereas dividend payments are not.Double taxation arises when an individual or business acquiring income in a foreign country is required to pay taxes on that income in both the foreign country as well as the country of origin.
Double tax treaties comprise of agreements between two countries, which, by eliminating international double taxation, promote exchange of goods, persons, services and investment of capital.
These are bilateral economic agreements where the countries concerned evaluate the sacrifices and advantages which the treaty brings for each contracting. Double taxation is always considered to be one of the most important issues in international taxation.
With the more and more business moving towards globalization and cross-border investment, double taxation is often cited as a major obstacle to liberate economic progress.
There are basically three types of systems for double taxation relief, the exemption system, credit system & reduction system. double taxation conventions and the use of conduit companies and taxation and the abuse of secrecy clause (OECD, ).
In the present paper we will limit our discussion to use of conduit companies and double taxation conventions, which is popularly referred as 'treaty shopping'. What Is Double Taxation?
Double taxation is a situation that affects C corporations when business profits are taxed at both the corporate and personal levels. The corporation has to pay income tax at the corporate rate before any profits are to be paid to shareholders. Join now to read essay Double Taxation Introduction Double taxation arises when an individual or business acquiring income in a foreign country is required to pay taxes on that income in both the foreign country as well as the country of origin/5(1).Download