What is double taxation?

double taxation occurs when the taxpayer is taxed twice for the same asset or income. This occurs when the jurisdictions are overlapped and the transaction, assets or income amount are subject to both jurisdictions. When an individual faces this situation, he may lose a significant part of the income, and in some cases this may cause a person to experience a reduced standard of living. Corporations also deal with two taxes, because corporations pay taxes on their income only to tax its shareholders again. They often claim that the removal of double taxes in all its forms will stimulate the economy, which will lead to increasing jobs, improving salaries and much better standard of living.

Some people claim that double taxation of corporations is not a problem at all. They argue that corporation is a legally independent entity from its shareholders, which quotes the fact that shareholders are provided with a certain level of liability protection in terms of damages caused by corporation. Given that korPorage is a completely separate taxpayer from its shareholders, argues, the same taxpayer is not twice taxed for the same assets or earnings.

Sometimes double taxation occurs due to international activities. For example, an individual may have business negotiations in one country while staying in another. In such a situation, the individual may be obliged to pay taxes for his business profits in his country of stay and in the country in which the company operates. Because this may require taxpayers to give up a significant part of their income, some countries have tax agreements to prevent this. These agreements allow taxpayers to pay taxes in their country of residence, enjoking exemption from taxation in the second country.

In other cases of international double taxation, an enterprise or individual is taxed in a country in which a profit is made. The taxpayer then enjoys the taxpayer in his countryeru, which excludes the problem. However, this situation does not offer taxpayers an easy way to avoid paying taxes, and the tax authorities communicate in each country to discover and investigate taxpayers who seek to use these laws to avoid paying.