Double Taxation Relief Essay

3628 words - 15 pages

INTRODUCTIONThe purpose of this paper is to provide a means to minimize or eliminate double taxation through double taxation relief, to reduce the risk of under taxation by promoting cooperation among countries. As far as we know lower overall taxation encourages trade and investment as well as opportunity for growth and profits. The possibility of double taxation arises when two or more countries claim simultaneous jurisdiction to tax the same income. There is some debate in a number of jurisdictions in which every government involved in international commerce act: whether a double tax agreement can have the effect of imposing a liability to tax where none existed under domestic legislation or whether such an agreement is restricted in scope to providing relief from tax (methods).Tax treaties represent one of the important aspects of international tax rules of most countries. The basic provisions are common to most countries and the overwhelming majority of these agreements based on the Model Tax Convention developed by the Organization of Economic Cooperation and Development (OECD) Model Treaty, the UN Model Treaty which includes some more provisions that are not mentioned in OECD.I. METHODS OF RELIEF FROM DOUBLE TAXATIONThe major problem of double taxation includes the country of residence forgoing its taxing rights either wholly or in part, in exchange for the country of source moderating its own claims. The source country's right has priority over the taxpayer's country of citizenship by reducing the rate of withholding tax applicable to dividends, royalties and interest payable to such resident. The taxpayer "home" country would then provide relief if it's taxing jurisdiction (based on residence/citizenship) intersects the source jurisdiction right. There is no international consensus that dictates the appropriate relief methods. However countries commonly use three:1.the deduction method2.the exemption method3.the credit methodWith respect to this point countries can use one of the above mentioned methods or combination to provide relief from international double taxation (Arnold, Brian J., 2002).1.DEDUCTION METHODThe deduction method allows residence to deduct foreign taxes paid in calculating their taxable worldwide income. This treats the foreign taxes paid as a current expenses and it is the least effective means of providing relief. The cause of it that the deduction merely reduces taxable income therefore residents paying foreign taxes on foreign source income is taxed at a higher combined rate than on domestic source income. Ultimately, the deduction method creates a bias in favour of domestic investing and is not tax neutral in allocating recourses between the countries (Thomas M. Brinker, W. Richard Sherman, 2002).2.EXEMPTION METHODUnder the exemption method, the taxpayer's home country will tax its residents/citizenships only on their domestic source income. Furthermore the country of residence exempts the taxpayer's foreign...

Find Another Essay On Double Taxation Relief

Tax planning and Tax Avoidance Analysis

2668 words - 11 pages to invest and utilize income within parent countries so as to avoid double taxation being levied on business. However, should conduit countries which are intermediaries in aggressive taxation planning of multinationals be in existence, tax at source income ensures that the company benefits minimally from Base Erosion and Profit Shifting (BEPS). These initiatives of regulating and monitoring businesses income flows especially multinationals

Three Tax Changes in Malaysia Essay

2910 words - 12 pages the inputs’ GST cannot be claimed as credit. Exempted supply includes transportation services, education services, health services, selected financial services and more . GST achieving the 3 objectives The government has acknowledged that the present indirect tax system has some weaknesses. Briefly, it is a single-stage tax with a cascading effect resulting in double taxation on consumers; it does not provide full tax relief for exported goods

Flat Tax

2979 words - 12 pages . The flat tax is also pro-growth. Today, business earnings are double tax through the corporate income tax and then the tax dividends, which are after-tax payments. This double taxation of the same direction of income makes saving and investing much less attractive relative to consumption. As any businessman or economist knows, savings provide the dollars for investment in the technologies that make workers more efficient. Without

Limited Liability

714 words - 3 pages passed through to each member of the LLC. Each member can claim their profits on their individual tax returns like in a partnership. As a result, members enjoy the advantages of avoiding the "double taxation" of corporations as well as receiving tax relief from the poor performance of their LLCs (Feigenbaum, n.d.). In an LLC owners can run their own businesses or hire managers to run it. LLC has a tremendous amount of flexibility. They can have as

Critically evaluate the environmental content of the Chancellor's recent budget

2405 words - 10 pages not increased overall. Any new green tax introduced should be balanced by a reduction of tax on labour. Many policy makers favor using environmental taxation to reduce taxes on labour. It is hoped that is it will provide a "double dividend" and is one of the key arguments in favor of fiscal instruments to reduce environmental problems.Throughout Europe there has been a growing emphasis on taxing labour while taxing natural resources has been

Country report for Poland

9506 words - 38 pages reimbursement include the purchase of land, construction or purchase of a building, cost of equipment and the cost of intangible assets.Poland is also a signer of the Treaty for the Prevention of Double Taxation. This treaty signed by 64 countries, including the United States, enables the offsetting of tax paid in one of two countries against the tax payable in the other, thus avoiding double taxation. Another important aspect of this treaty is

Education Policy in Michigan

2340 words - 9 pages . The educational funding problem in Michigan takes root back in 1809, when the first public school was founded. While funding was not an issue at the time, the way schools were funded through local property taxes eventually created a large problem. Fast forward to 1985, Michigan has long moved past the rural cities of the 1800’s and into affluent suburbs and cities. The size and taxation pools of cities have greatly changed from 1809 to 1985

Tax as a Means of Control and Stimulator of the Economy in the Uk. Is it a Good Idea to Fluctuate the Tax Rates for Stabilizing the Economy? Is Tax Necessary for a Country’s Growth? Is Green Tax ...

9199 words - 37 pages tax on long flights. Timesonline.co.uk, November 16th 2006 [Online]. Available at: http://www.timesonline.co.uk/tol/news/world/us_and_americas/article1087415.ece [Accessed: 1st June 2009]BIBLIOGRAPHYA History of Taxation [Online]. Available at: http://www.taxworld.org/History/TaxHistory.htm [Accessed: 4th March 2009]Anonymous (2009) Tax relief. Country Monitor, Vol. 17, Issue. 9, pg. 8. Proquest [Online]. Available at: http://proquest.umi.com

Corporate Greed and the fall of Our Economy

2231 words - 9 pages ' ability to raise capital and keep pressure on consumer spending. Lenders' pain also spells more trouble for financials stocks. In the mean time taxes are raised to an all time high double taxation in such cities as Pico Rivera, here in California, with the highest taxes in the country. Budget cuts from Colleges, Police departments, and our much needed Fire department just to name a few, and let us not forget the hike in admission fees so our

Doing business with russia: The Guisnel Group

9560 words - 38 pages tax resident in Russia, may be credited against Russian tax payable if the other country of tax residency of an individual has concluded a treaty on the avoidance of double taxation with Russia. The foreign tax credit cannot exceed the Russian tax payable on the same income. To obtain this relief, the taxpayer must present a document, certified by the tax authorities of the foreign state, proving that the foreign tax was paid.Russian Labor

managerial finance

7840 words - 31 pages the corporation.If you're only making enough to get by, however, this won't help you because you'll need to pay almost all of the corporation's earnings to yourself. If the corporation has shareholders, corporate earnings become subject to double taxation in the sense that income earned by the corporation is taxed and dividends distributed to shareholders are also taxed. However, if you are a one-person corporation, you don't have to worry about

Similar Essays

Double Taxation Essay

1712 words - 7 pages United States government (Howard, 2001, p. 259). The purpose of this paper is to examine the merit of three basic systems, which is exemption system, credit system and deduction system. These systems are dealings with the essence of tax relief from international double taxation. A discussion of various countries on their practices on tax relief system and the rationale for using the system will be presented, followed by an analysis of the most

Dividend Tax Essay

1576 words - 6 pages of corporate income. Which is a “double taxation”( http://pages.stern.nyu.edu/~byeung/dividend%20taxation.pdf). The double taxation raises the questions of whether the tax should be eliminated, and which taxes should be cut. With both sides ..., the dividend tax … because…, The dividend tax was introduced in 1936 by President Roosevelt in the New Deal (Levey). The Economic Growth and Tax Relief Reconciliation Act of 2001 introduced lower

Progressive Taxation Better For Fairness Essay

2274 words - 10 pages taxed at a higher rate. Besides, due to it complex nature, a bad tax policy can bring double taxation and additional business tax at an individual level. Conclusion In conclude, two systems have both positive and negative impact on economic growth and business efficiency. In evaluation, progressive tax gives more benefits in macro-perspective, such as bringing more government revenue and preventing market failure. Nevertheless, flat tax affects

The Impact Of The Internet And E Commerce On Tax Regimes In The Commonweath Caribbean

5786 words - 23 pages Canada. A resident made alimony payments to a former spouse living abroad, the court held that the spouse was exempted from liability to pay tax on alimony within the term 'annuity' in the Double Taxation Relief (Canada) Order 1960. The non-existent of double taxation agreements between countries could result in individuals and companies being taxed twice, deliberately practicing tax evasion or keep income in countries that