10: International and Indirect Taxation Flashcards
(10 cards)
residence (OECD)
place of incorporation (domiciled country)
place of effective management
place of permanent establishment
if you are an international individual/entity, how to establish residence?
only resident in one country
use country of effective management
withholding tax (WHT)
tax on a dividend payment, deducted at source and paid to the local government
before the dividend payment can be made overseas and leaves the country
underlying tax (ULT)
when a company pays dividends, it comes out of post-tax profits
so there is already a tax on the dividend, which is the underlying tax
- tax already suffered on the dividend
proportion of the foreign tax paid on the profits relating to dividends received
calculated as gross dividend x tax rate paid by foreign company / foreign company’s profit after tax
double taxation
when dividends are received from overseas, dividend income is likely to have been subject to WHT and ULT
3 methods to give relief for double taxation
exemption
- income from one country is not taxable in another
tax credit
- tax paid in one country deducted from tax due in another country
deduction
- only looking at income after tax so net amount is taxable in the second country
OECD suggests exemption and tax credit
transfer pricing
companies in a group format can structure transactions to move profits/losses around and between groups
transfer pricing rules
profit has to be computed as if the transaction had been carried out arms length rather than prices actually used
types of indirect taxation
unit tax (excise duties)
ad valorem tax (sales, VAT)
excise duties
property taxes
wealth tax
consumption tax
3 categories for suppliers of goods/services with regards to sales tax
standard-rated goods
- sales tax charged at standard rate
zero-rated goods
- sales tax charged at 0%
- rated so you can reclaim tax suffered on purchases
exempt
- no sales tax charged but also none reclaimed
