What Are Double Taxation, Double Tax Agreement And Double Tax Relief? (Part 1 of 3)
I was trying to explain these 3 to a prospect client today.
Let me try to share on this platform…
I shall break this sharing into 3 parts…
Part 1 of 3 Double Taxation
1. Double taxation is the levying of tax by 2 or more jurisdictions on the same declared income ( corporate income tax ), assets ( capital gains tax )or financial transactions ( sales tax )
2. Double liability is mitigated in a number of ways, for eg:
* the main taxing jurisdiction may exempt foreign-source income from tax,
* the main taxing jurisdiction may exempt foreign-source income from tax if tax had been paid on it in another jurisdiction, or above some benchmark to not include tax haven jurisdictions,
* the main taxing jurisdiction may tax the foreign-source income but give a credit for foreign jurisdiction taxes paid.
3. Another approach is for the jurisdictions affected to enter into a tax treaty which sets out rules to avoid double taxation.
4. The term “double taxation” can also refer to the double taxation of some income or activity. For example, in some jurisdictions, corporate profits are taxed twice, once when earned by the corporation and again when the profits are distributed to shareholders as a dividend or other distribution.
5. The term is not usually used to refer to the taxation of the same income by different levels of government, such as by federal, state and local authorities.
(to be continued…look out for Part 2 of 3 on Double Taxation Agreement)
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