International and Indrect Tax Flashcards
What does Oragnisation for economic coporation and development model state regarding residence of entity
Entity is liable to tax in a country by reason of:
- Place of incorporation
- Place of effective mangement
-Place of permanent establishment
What is meant by a permanent establishment meanss
Fixed place of business through whcih the business of an entity is wholly or partly carried on
- Place of management
- Branch
- office
- factory
- workshop
-mine,oil or gas well
- building construction site
By which model does OECD ultimately determine entity to be residence by
- Place of effective management
How is place of effective management evidenced
- Place where key management and commercial decisions are made
- Place where the board or senior management meet
What is Witholding tax
When dividend payments are made overseas
- tax is applied and deducted and paid to local government
What is underlying tax
Tax suffered on the profits from which a dividend is paid.
Underlying tax describes the corporate income tax suffered on the profits an entity distributes as a dividend.
-Proportion of foreign tax paid on the profits that relate to the gross amount of the dividend received
What is equation for ULT
ULT = Gross dividend X Tax paid by foreign company/foreign company’s profit after tax
What is double taxation relief
When parent company reccieves dividend from an overseas subsidiary - already subjected to both WHT and ULT
What are three methods of applying double taxation relief
- Exemption: treaty specifically states that income from Country A is not taxable in Country B
- Tax Credit: The tax paid in Country A is deductible from the tax due in Country B. No further tax is due in Country B but no refund tax will be given
- Deduction: the income after tax in Country A is taxable in Country B - not allowed under OECD
What is transfer pricing
Companies under common control (group) could structure transactions to move profits or losses from one company to another
What rules are there regarding transfer pricing
Profit to be computed as if the transaction had been carried out at arm’s length
- at normal prices
- to prevent tax avoidance
What is indirect tax
Tax levied on expediture
What are examples of indirect taxes
- Unit Taxes: based on number or weight of items
- Ad Valorem Taxes: based on value of items eg.sales or VAT
- Excise duties: certain commodities to discourage the purchase and are non refundable
- Property Taxes: valued at property cost
- Wealth Taxes: taxed each year based on net worth (assets - liabilities)
- Consumption Taxes: tax paid depends on consumptions of goods by consumer and added to purchase price eg/ sales or VAT
What are the rates of sales tax
Standard: sales taax charged at standard rate for country and entity will charge sale tax and claim back tax suffered
Zero: sales charged on product at rate of 0% - charge tax but at nothing and reclaim sales tax in purchases
Exempt: product is not chargeable to sales tax and entity cannot charge VAT or reclaim on purchases
