Double taxation
From Wikipedia, the free encyclopedia
Double taxation is a situation in which two or more taxes may need to be paid for the same asset, financial transaction and arises due to overlap between different countries' tax laws and jurisdictions. The liability is often mitigated by "tax treaties" between countries.
In the USA, the term "double taxation" is often used (unconventionally) to Dividend taxation (which see). This usage is not widely recognised outside the USA.
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[edit] (International) Double Taxation Agreements
It is not unusual for a business or individual who is resident in one country to make a taxable gain (earnings, profits) in another. This person may find that he is obliged by domestic laws to pay tax on that gain locally and pay again in the country in which the gain was made. Since this is inequitable, many nations make bilateral Double taxation agreements with each other. Conventionally, this requires that tax be paid in the country of residence and be exempt in the country in which it arises. To do this, the taxpayer must declare himself (in the foreign country) to be non-resident there. So the second aspect of the agreement is that the two taxation authorities exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion.
[edit] European Union savings taxation
In the European Union, member states have concluded a multilateral agreement1 on information exchange. This means that they will each report (to their counterparts in each other jurisdiction) a list of those savers who have claimed exemption from local taxation on grounds of not being a resident of the state where the income arises. These savers should have declared that foreign income in their own country of residence, so any difference suggests tax evasion.
(For a transition period, some2 states have a separate arrangement. They may offer each non-resident account holder the choice of taxation arrangements: either (a) disclosure of information as above, or (b) deduction of local tax on savings interest at source as is the case for residents).
[edit] India Mauritius Double taxation avoidance treaty
According to Double Taxation Avoidance Act between India and Mauritius, Capital Gains arising from sale of shares is taxable in the country of residence of the shareholder and not in the country of residence of the Company whose shares have been sold. Therefore, a Company resident in Mauritius selling shares of Indian Company will not pay tax in India. Since there is no Capital gains tax in Mauritius, the gain will escape tax altogether.
[edit] Notes
Note 1: Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments.
Note 2: See (17) and (18) of above, for a "temporary" period, Austria, Belgium and Luxembourg may apply a withholding tax to non-resident accounts rather than exchange information.
