Questions on Double Taxation

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Double Taxation Objective The objective of this work in writing is to answer the following questions: (1) How can corporation avoid juridical double taxation when there is no tax convention between the contracting jurisdiction and other contracting jurisdiction? (2) How does U.S. treatment of pension income of non-residence compared to OECD "domestic test" treatment of pension income? And (3) Explain the OECD Independent Personal Service Article. What difference, if any, has the article with Permanent Establishment? I. How can corporations avoid juridical double taxation when there is no tax convention between the contracting jurisdiction and other contracting jurisdiction? In the situation where a taxpayer is a resident in one country and has a source of income that is situated in another country, there is a potential for double taxation arising. This is due to two basic rules that enable both the country of residence and the country where the source of income exists to impose tax. These are referred to as the (1) Source rule; and (2) The residence rule. (OECD, 2008) According to the source rule, "income is to be taxed in the country in which it originates irrespective of whether the income accrues to a resident or a nonresident whereas the residence rule stipulates that the power to tax should rest with the country in which the taxpayer resides." (OECD, 2008) In the event that there is not tax convention between the contracting jurisdiction and the

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