International Double Taxation

Abstract

AbstractInternational double taxation is more and more relevant nowadays, as economies are becoming more and more integrated, and individuals and firms increasingly operate in more than one country. International double taxation is the obligation for the same taxpayer to pay income or corporate tax in more than one country. In most countries, Double Taxation Agreements (DTA) play a vital role in reducing or eliminating international double taxation. Such DTAs are agreed upon between two countries based on a common framework, usually the OECD Model Tax Convention on Income and Capital. There are more than 3000 DTAs, with most of the OECD countries having dozens each. However, in cases where no DTA exists between two states, the residence state usually has at least one method in place to reduce or eliminate international double taxation for income and corporate tax in the law. Theoretically, four methods exist: total exemption, exemption with progressivity, full tax credit, and partial tax credit. Most states employ the second (exemption with progressivity) for some public functions, although the fourth method is the one mostly used with regard to income earned abroad.