Double Taxation

Double Taxation

Summary of Double Taxation

The condition that arises when a multinational firm is taxed on overseas income in both the source country and the country of the corporation’s domicile. This problem arises because nations use varying systems of taxation. Recognizing that double taxation is inimical to trade, many nations have entered into tax treaties under which the signatory states eliminate or modify income taxes on each other’s enterprises with the understanding that the income will be taxed in one country alone.

One method used in addressing foreign income is the tax credit method, in which the home country permits the firm to apply against its tax obligations on foreign earnings a credit for all or part of the taxes paid in the country where the income was earned. In some cases, a nation permits a full tax credit, which is a dollar-for-dollar credit against what was paid abroad; in other instances, the home country permits an ordinary tax credit, which is equal to the tax the company would otherwise have paid had the income been earned in the home country. Under this process, the firm loses the difference between the taxes actually paid abroad and what it would have had to pay to its own government, presuming the foreign tax rate is higher. In most cases, the United States employs the ordinary tax credit method.

Another solution is the exemption method, in which income taxed abroad is fully exempt from taxation in the home country (the/w// exemption method) or is omitted from home country taxation but is taken into account in determining gross income when progressive methods of taxation are employed (the exemption with progression method).

For provisions of specific U. S. tax treaties, click here.

(Main Author: William J. Miller)


See Also

  • International Trade
  • Trade Regulation
  • International Economic Law
  • Export License
  • International Trade Law
  • Foreign Trade
  • Safeguard
  • Tariff Policy

Hierarchical Display of Double taxation

Finance > Taxation > Fiscal policy
Finance > Taxation > Tax on income
Law > Rights and freedoms > Anti-discriminatory measure > Economic discrimination

Double taxation

Concept of Double taxation

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Thesaurus of Double taxation

Finance > Taxation > Fiscal policy > Double taxation
Finance > Taxation > Tax on income > Double taxation
Law > Rights and freedoms > Anti-discriminatory measure > Economic discrimination > Double taxation

See also