Notes On Tax Taxation And Taxation

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3. Source-source double taxation. This is when both countries consider the source of the income to be within their country. Tax treaties will provide rules for determining the source of income. The source rules not only clarify in which country the income originated and may be tax but also states that the country that does not impose taxes must provide a relief from double taxation.”
Economic double taxation is where the same income is taxed in more than one country in the hands of different taxpayers. This can occur when associated businesses are treated in different countries as having accrued the same profits. By using an arm’s length standard tax treaties can eliminate double taxation and tax avoidance. Another option would be to
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A resident business that is foreign owned can’t have a larger tax liability than a locally owned business. Tax treaty are used to discourage tax discrimination. They prohibit a country from imposing a higher tax rate of a non-resident with the same circumstance as a resident. Both residents and non-residents must receive the same tax treatment. The non-discrimination rules include all taxes and not just those which are covered under the tax treaty. This rule eliminates the fear of being subjected to tax discrimination.
Developing countries attempt to attract foreign investment by providing clear and certain tax rules through tax treaty. Tax treaties will clearly state what the tax obligations will be to the taxpayer/business, which will simplify tax issues for those involved in cross-border activates. Under the domestic laws tax treatment can change frequently where tax treaties are generally valid for at least 15 years therefore they provide more stability and comfort to taxpayers about the tax treatment to the income from their activities or investments in the other country. Tax treaties are also used to get tax administration to agree on how to interpret and apply provision as well as resolve disputes. It is important that tax treaties are interpreted the same way in both countries otherwise income may be taxed twice (double taxation) or not at all (double
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