International Tax Environment

INTERNATIONAL TAX ENVIRONMENT

Presented By:

Avijit Palit

Dawda Colly

Harold Katatumba

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DEFINITION

International taxation is the study of tax on a person or business subject to the tax laws of different countries or the international aspects of an individual country's tax laws.

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TYPES OF TAXATION

The twin objectives of taxation are:

1. Tax Neutrality

2. Tax Equity

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TAX NEUTRALITY

A tax scheme is tax neutral if it meets three criteria:

Capital Export Neutrality: the tax scheme doesnot incentivize citizens move their money abroad.

National Neutrality: taxable income is taxed inthe same manner by the taxpayer’s national taxauthorities regardless of where in the world it is earned.

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CONT…

Capital Import Neutrality: the tax burden on aMNC subsidiary should be the same regardless of where in the world the MNC in incorporated.

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TAX EQUITY

Tax Equity: regardless of the country in which anaffiliate of a MNC earns taxable income, the sametax rate and tax due date should apply.

The principal of tax equity is difficult to apply, theorganizational form of the MNC can affect thetiming of the tax liability.

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TYPES OF TAXATION

Income Tax

Withholding Tax

Value-Added Tax

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INCOME TAX

An income tax is a tax on personal and corporateincome.

Many countries in the world obtain a significantportion of their tax revenue from income taxes.

An income tax is a direct tax, that is one that ispaid directly by the taxpayer upon whom it islevied.

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WITHHOLDING TAX

Withholding taxes are withheld from the paymentsa corporation makes to the taxpayer.

The taxes are levied on passive income earned by an individual or corporation of one country withinthe tax jurisdiction of another country.

A withholding tax is an indirect tax which includes dividends and interest income, income from royalties, patents, or copyrights.

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COMMERCIAL BREAK

On a farm there are ELEPHANTS, OSTRICHES and SNAKES. That means, there are 50 eyes, 40 legs and 6 trunks on the farm.

How many SNAKES are on the farms?

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VALUE-ADDED TAX A value-added tax is an indirect national tax

levied on the value added in production of a goodor service.

In many European and Latin American countriesthe VAT has become a major source of taxationon private citizens.

Many economists prefer a VAT to an income taxbecause the incentive effects of the two taxesdiffer sharply.

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OTHER TYPES OF TAXATION

A wealth tax is a tax levied not on income but onthe wealth of a taxpayer. Property taxes is anexample.

A poll tax is a tax on your existence. It is so calledbecause it was collected from those who wished tovote.

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TAX HAVENS

Tax havens are countries with low corporateincome tax rates and low withholding tax rates onpassive income.

Tax havens were once useful as locations for aMNC to establish a shell company.

The Tax Reform Act of 1986 greatly diminishedthe need for and ability of U.S. corporations toprofit from the use of tax havens.

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