3. 2. International taxation
• Tax in digital world
There are some tax issues in digital world
– Which tax jurisdiction entities pay tax
– What happens if tax is charged in multiple countries
• Corporate residence
– Every resident company must pay tax on their world wide
income
– A company becomes resident to a country either by
incorporating or by control (place where the head office is located or board
meetings held)
– Double taxation (An entity may end up being taxed in more
than one country
– Double taxation relief is often available in this
situation
4. • Double taxation relief methods ( three main methods
of double taxation relief)
– Exemption
– Tax credit
– Deduction
• Types of overseas operations
– Subsidiary (foreign subsidiary is a separate entity,
group tax relief is not available, allowed for
different tax depreciation)
– Branch ( it is extension of head office operations,
loss relief is available to the group, assets can be
transferred between branches, branch can claim
tax depreciation on all its assets)
5. • Types of foreign tax
– Withholding tax (tax is withheld while paying the
income like rent, interest, royalties, dividend,
capital gains etc.)
– Underlying tax (when entity receives dividend
from overseas entity then dividend is taxed as part
of profit in the country where it is earned and
again on dividend in the country where it is
received – this is called as underlying tax
6. • OECD model tax convention
– OECD address the issues of double residency
– Only in a country where the business has
permanent establishment in that country only tax
will be charged
– Permanent establishment includes factory,
workshop, branches, office, place of management,
mine, construction project etc.
7. • Transfer pricing
– This applies where group companies transfer goods to
other group companies at favourable prices and avoid
the tax.
– Mostly group companies attempt to move profits to
other countries where taxes are low.
– This type of doing is mostly criticised for not paying
fair share of tax
– Rules for transfer pricing
• Goods and services: An adjustment will be made in the
corporate tax computation for the entity gaining the tax
advantage to reflect ;profit correctly had the transaction at
arms length
• Provision of loan finance;: If excess loan is provided to group
company than normally loan provided by third party, The
interest charges on this excess amount not quality for tax
deducion.
