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Double taxation occurs in several ways. At the international level, it occurs between two countries due to overlap between their tax laws. It also may happen at the corporate Dividend level. CORPORATION DIVIDEND TAX Typically, a corporation pays income taxes on its profits, and may decide to issue a portion of those proceeds as dividends to its shareholders. Despite the fact that this money has already been taxed at the corporate level, when it changes hands to the shareholder, it's taxed again at the personal level. This is referred to as the Dividend Tax . (On the other hand, a partnership is not itself taxed, but partners pay personal income tax on their share of net earnings at the end of the year, whether or not those earnings are distributed). In Australia double taxation of dividends is avoided by the use of a dividend imputation system. USA In 2003, President Bush lobbied to repeal the dividend tax, citing double taxation as the reason. A compromise with Congress resulted in the Jobs And Growth Tax Relief Reconciliation Act Of 2003 , which taxes most Americans at the 15% level, and low-income Americans at the 5% level. (INTERNATIONAL) DOUBLE TAXATION AGREEMENTS See Also: Tax treaty 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. European Union savings taxation In the European Union , member states have concluded a multilateral agreement 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, some 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). NOTES Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments . 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. |
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