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{{Short description|Levying of compulsory charges on the same thing by two different jurisdictions}}
{{Taxation|expanded=Policies}}
'''Double taxation''' is the levying of tax by two or more jurisdictions on the same income (in the case of [[income tax]]es), [[asset]] (in the case of [[Wealth tax|capital taxes]]), or [[financial transaction]] (in the case of [[sales taxes]]).
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* fully tax the foreign-source income but give a credit for taxes paid on the income in the foreign jurisdiction.
The term "double taxation" can also refer to the taxation of some income or activity twice. For example, [[Corporate tax|corporate profits]] may be taxed first when earned by the corporation ([[corporation tax]]) and again when the profits are distributed to shareholders as a [[dividend]] or other distribution ([[dividend tax]]).
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{{Main|Tax treaty}}
It is not unusual for a business or individual who is resident in one country to make a taxable gain (earnings, profits) in another country. It could happen that a person will need to pay tax on that income locally and also in the country in which it was made. The stated goals for entering into a treaty often include reduction of double taxation, eliminating tax evasion, and encouraging cross-border trade efficiency.<ref>{{cite web |url=http://faculty.law.wayne.edu/tad/Documents/Teaching_Materials/model_treaties.pdf |title
A DTA (double tax agreement) may require tax to be levied by the country of residence, and be exempt in the country in which it arises. In other cases, the resident may pay a [[withholding tax]] to the country where the income arose, and the taxpayer receives a compensating [[foreign tax credit]] in the country of residence to reflect the fact that tax has already been paid. In the former case, the taxpayer would declare himself (in the foreign country) a non-resident. In either case, the DTA may provide that the two taxation authorities exchange information about such declarations. Because of this communication between the countries, they also have a better view on individuals and companies who are trying to [[tax avoidance|avoid]] or [[tax evasion|evade tax]].<ref>Darren Rykers (2009): "A Critical Analysis of how Double Tax Agreements can facilitate Fiscal Avoidance and Evasion"; ''The Taxpayer and the Lotus'', 17 Nov. 2009.</ref>
Individuals ("natural persons") can only be resident for tax purposes in one country at a time. Corporate persons, owning foreign subsidiaries, can be based in one country and simultaneously based in another country: a subsidiary may make substantial income in one country but remit that income (as license fees, for example) to a holding company in another country that has a lower rate of corporation tax. Because of this, the control of unreasonable tax avoidance of corporations becomes more difficult and it requires more investigation when goods, rights and services are transferred.<ref>Gio Wiederhold (2013)
===Double taxation relief===
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[[Cyprus]] has entered into over 45 double taxation treaties and is negotiating with many other countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country, resulting in the taxpayer paying no more than the higher of the two rates. Some treaties provide for an additional tax credit for tax which would have been otherwise payable had it not been for incentive measures in the other country which result in exemption or reduction of tax.
===
In January 2018, a DTA was signed between Czech Republic and South Korea.<ref>{{cite web|author1=Svoboda, F. | author2= Hruzik, A. (n.d.). |url=https://danovky.cz/en/new-double-taxation-treaty-with-korea-introducing-substantial-changes |title= New double taxation treaty with South Korea introducing substantial changes.}}</ref> The treaty eliminates double taxation between these two countries. In this case, a Korean resident (person or company) that receives dividends from a Czech company needs to balance the Czech dividend withholding tax but also the Czech tax on profits, profits of the company that pays the dividends. The treaty covers taxation of dividends and interest. Under this treaty, dividends that are paid to the other party will be taxed at the maximum of 5% of the total amount of dividend for legal entities as well as for individuals. This treaty reduces from 10% to 5% the limit for taxing paid interest. Copyrights to literature, works of art etc. still remain free from taxation. For patents or trademarks a maximum 10% tax rate is implied.<ref>{{cite news|title=The Tax Hub. (n.d.).| url=https://www.orbitax.com/news/archive.php/Update-–-Tax-Treaty-between-th-32854}}</ref>{{better source|date=November 2019}}
=== German taxation avoidance ===
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So, for example, the Double Tax Treaty with the UK looks at a period of 183 days in the German tax year (which is the same as the calendar year); thus, a citizen of the UK could work in Germany from 1 September through the following 31 May (9 months) and then claim to be exempt from German tax. As the double taxation avoidance agreements will give the protection of income from some countries.
===The Netherlands
Different factors such as political and social stability, an educated population, a sophisticated public health and legal system, but most of all the corporate taxation makes the Netherlands a very attractive country of doing business in. The Netherlands levies corporate income tax at a 25 per cent rate. Residents taxpayers are taxed on their worldwide income. Non-residents taxpayers are taxed on their income derived from Dutch sources.
There are two sorts of double taxation relief in The Netherlands. Economic double taxation relief is available with regard to proceeds from substantial equity investments under the participation. Juridical double taxation relief is available for resident taxpayers having foreign source income items. In both situations there is a combined system in place which makes difference in active and [[passive income]].<ref>Maarten F. de Wilde & Geert T. W. Janssen(2011): ''The Netherlands: Key practical issues to eliminate double taxation of business income.'' Erasmus School of Law, 2011.</ref>
=== Hungary ===
Hungary is unique as it is the only non-developing country (the other, developing country being Eritrea, at a flat 2%) that considers all of its citizens tax residents, and provides no personal allowance (such as the US [[foreign earned income exclusion]]) – income is taxed from the first penny earned.<ref>{{Cite web|url=https://net.jogtar.hu/jogszabaly?docid=99500117.TV|title=1995. évi CXVII. törvény
While double taxation agreements do provide for relief from double taxation, Hungary only has some 73 of them in place. This means that Hungarian citizens receiving income from the 120-odd countries and territories that Hungary has no treaty with will be taxed by Hungary, regardless of any tax already paid elsewhere.
==India
India has comprehensive double taxation avoidance agreement with 88 countries, out of which 85 have entered into force.<ref>{{cite web|url=http://pib.nic.in/newsite/erelease.aspx?relid=93330|title=Double Taxation Avoidance agreement (DTAA) with South Korea|publisher=Press Information Bureau|access-date=31 May 2016}}</ref> This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the [[The Income-tax Act, 1961|Income Tax Act 1961 of India]], there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 (bilateral relief) is for taxpayers who have paid the tax to a country with which India has signed double taxation avoidance agreements, while Section 91 (unilateral relief) provides benefit to tax payers who have paid tax to a country with which India has not signed an agreement. Thus, India gives relief to both kinds of taxpayers. The rates differ from country to country.
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A large number of foreign institutional investors who trade on the Indian stock markets operate from [[Singapore]] and the second being [[Mauritius]]. According to the tax treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no [[capital gains tax]] in Mauritius, the gain will escape tax altogether.
The Protocol for amendment of the India-Mauritius Convention signed on 10 May 2016, provides for source-based taxation of capital gains arising from alienation of shares acquired from 1 April 2017 in a company resident in India. Simultaneously, investments made before 1 April 2017 have been grandfathered and will not be subject to capital gains taxation in India. Where such capital gains arise during the transition period from 1 April 2017 to 31 March 2019, the tax rate will be limited to 50% of the domestic tax rate of India. However, the benefit of 50% reduction in tax rate during the transition period shall be subject to the Limitation of Benefits Article. Taxation in India at full domestic tax rate will take place from financial year
The revised double taxation avoidance agreement between India and Cyprus signed on 18 November 2016, provides for source based taxation of capital gains arising from alienation of shares, instead of residence based taxation provided under the double taxation avoidance agreement signed in 1994. However, a grandfathering clause has been provided for investments made prior to 1 April 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident. It also provides for assistance between the two countries for collection of taxes and updates the provisions related to Exchange of Information to accepted international standards.
The
The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases. The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion. Singapore's investment of $5.98 billion has over taken Mauritius's investment of $4.85 billion as the single largest investor for the year 2013–14.<ref>{{cite web|url=http://pib.nic.in/newsite/erelease.aspx?relid=156015|title=Press Information Bureau|website=pib.nic.in|access-date=9 April 2018}}</ref>
==Australia
In principle, an [[Income tax in Australia#Residency for tax purposes|Australian resident]] is taxed on their worldwide income, while a non-resident is taxed only on Australian-sourced income. Both legs of the principle may give raise to taxation in more than one jurisdiction. To avoid double taxation of income by different jurisdictions, Australia has entered into [[Tax treaty|double taxation avoidance agreement]]s (DTAs) with a number of other countries, under which both countries agree on which taxes will be paid to which country.
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===U.S. citizens and resident aliens abroad===
In principle, United States citizens are liable to tax on their worldwide earnings, wherever they reside. However, some measures mitigate the resulting double tax liability. An individual who is a [[bona fide]] resident of a foreign country or is physically outside the United States for an extended time is entitled to an exclusion (exemption) of part or all of his [[earned income]], i.e. personal service income, as distinguished from income from capital or investments.<ref name=us54/> (See IRS form 2555.) If some income is not covered by this exclusion, foreign taxes paid on it can be claimed as a credit.<ref name=us54>{{cite web |url=https://www.irs.gov/publications/p54/index.html |title=Publication 54 (2015), Tax Guide for U.S. Citizens and Resident Aliens Abroad |access-date=31 May 2016}}</ref>
=== Double taxation within the United States ===
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{{main|Dividend tax}}
In the US, the term "double taxation" is sometimes used to refer to dividend taxation. This situation arises when corporate profits are considered to have been taxed twice: first when earned by the corporation (corporation tax) and again when the profits are distributed to shareholders or stockholders as a dividend or other distribution (dividend tax).<ref>Robert Carroll (2010) {{cite web|url=http://www.taxfoundation.org/publications/show/26384.html |title=
==China==
In recent years,{{when|date=March 2020}} the development of overseas investment of Chinese enterprises is growing rapidly and has become rather influential. Thus, dealing with cross-border taxation matters turns into one of the significant financial and trade projects of China, and the problems of cross-border taxation is still increasing. In order to solve the problems, the multilateral tax treaties between countries, which can provide legal support to help enterprises from both sides with double taxation avoidance and tax issues solutions, are established. To fulfill the "[[Go Out policy|
In addition, China signed double taxation avoidance arrangement with Hong Kong and Macau [[Special administrative regions of China|Special Administrative Region]]. China also signed double taxation avoidance agreement with Taiwan in August 2015, which has not entered into force yet. According to the Chinese [[State Administration of Taxation]], the first double taxation avoidance agreement was signed with Japan in September 1983. The latest agreement was signed with Cambodia in October 2016. As for the situation of state disruption, China would continue the signed agreement after the disruption. For example, China first signed double taxation avoidance agreement with Czechoslovakia Socialist Republic in June 1987. In 1990, Czechoslovakia divided into two countries, Czech Republic and Slovakia Republic, and the initial agreement signed with Czechoslovakia Socialist Republic was continually used in two new countries. In August 2009, China signed the new agreement with Czech Republic. And when it comes to the special case of Germany, China continued using the agreement with The Federal Republic of Germany after two Germanys reunited. China have signed double taxation avoidance agreement with many countries. Among them, there are not only countries which have made large investment in China, but also countries which as well-relationship recipient of Chinese investment. As for the agreement quantity, China is now next only to United Kingdom. For those countries which have not signed the double taxation avoidance agreements with China, some of them signed information exchange agreements with China.<ref>{{cite web|title=国家税务总局|url=http://www.chinatax.gov.cn/n810341/n810770/|website=www.chinatax.gov.cn}}</ref> There are mainly four effects of signing Double Taxation Avoidance agreement.
1. Eliminate the double taxation, decrease the tax cost of
2. Increase the certainty of taxation, decrease the risk of cross-border taxation
3. Decrease the tax burden of
4. When taxation disputes occur, the agreements can provide bidirectional consultation mechanism, solve the existed disputed problems.
Under general conditions, the tax rate under tax treaty is often lower than the domestic tax rate under the law of host country. Take Russia as an example, in Russia, the standard withholding tax rate of interest and royalty under domestic law is both 20%. According to the newest tax treaty China signed with Russia, the withholding tax rate of interest is 0 and the withholding tax rate of royalty is 6%. This can obviously reduce the tax cost of enterprises, increase the willing of
== See also ==
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