What Is Double Taxation?
Double taxation occurs when the same dollar of income is taxed twice, often by different governments. This problem can happen with both individual and corporate income. The first time it happens, the person who earned the money is taxed in the country that generated the money, while the second time, the person is subject to the tax of the country where the money was earned. This practice is illegal and many countries have signed treaties to prevent double taxes.
A common example of double taxation occurs with international trade. Suppose a shoemaker in Spain makes a pair of shoes that they sell in the United Kingdom. The United Kingdom decides to collect its income taxes on the Spanish company, who then pays the taxes on a certain percentage of the revenue. As a result, the Spanish shoe company is subject to double taxation. This problem arises because each country has different rates on income tax.
Double taxation can also occur when foreign countries collect income taxes from businesses. For example, a Spanish shoe company sells its product in the United Kingdom. The United Kingdom decides to collect its income tax from the Spanish shoe company. In return, the company pays its income taxes in the United Kingdom. The Spanish company then pays its dividends to the British government, which then pays the income tax to the U.K. The result is double taxation.
Depending on the country, double taxation can occur when businesses sell their goods in another country. For example, a Spanish shoe maker sells his product in the United Kingdom. The United Kingdom decides to collect income taxes from the Spanish company. The Spanish shoe company pays its income tax bureau a certain percentage of its revenue. This process is known as double taxation. However, the results of such situations can be a disaster.
Double taxation can also arise when businesses transact internationally. For example, a Spanish shoe manufacturer sells its product in the United Kingdom then decides to collect income taxes from the company. This is called “double taxation.” The shoe company pays its income taxes to the UK’s income tax bureau and then distributes the rest to its shareholders. In this case, the tax payers receive a larger share of the earnings than those who don’t.
The principle of double taxation is that the same income is taxed twice. For example, a company in Spain is taxed in Spain, while the United Kingdom collects income taxes from its own citizens. The two countries don’t have the same tax laws, and the same person is subject to double taxation. If the taxation happens, the individual pays taxes twice. If the individual is an employee of a company, double-taxation may occur.