R) Double Taxation and Relief

  1. Does legislation provide for the relief of double taxation?

  2. How in general terms is double taxation avoided?

    Comments provided to this question indicate that the main source of relief is through double tax treaties. Some countries cited that they use an exemption system for corporations in respect of dividends from foreign corporations within a corporate group.

    It seems that further study is needed in this area, because double taxation can occur in a number of ways. While the main focus of the answers was with respect to a foreign tax credit or an exemption on international income, to prevent tax being levied by more than one country on the same income, double taxation can also arise in a variety of other ways. For example, double taxation can occur when profits are taxed in the hands of a corporation and again at the personal level when these profits are distributed by way of a dividend to shareholders. Double taxation can also apply when there is not an appropriate recognition of losses. If there is not a reasonable method for relief of losses, arguably this may be a form of double taxation. Also, double taxation can arise where shares of a corporation are purchased without a rebasing of the tax cost of assets in the corporation.  Furthermore, double taxation can arise in many circumstances in the event of death. An individual may, for example, be subject to estate tax on death, without a rebasing of the assets in the hands of the heirs, such that capital gains tax is paid by them when the assets are sold.

    It is recommended that a further study be done on double taxation as a topic in and of itself.
  3. Is double taxation an important issue and a common problem?

    Many countries provided comments on whether double taxation is an important issue and a common problem. A large number of countries replied positively to this question, indicating that double taxation was an important issue and a common problem.