What is International Taxation?

What is International Taxation?

International taxation is the study or determination 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 as the case may be.

International taxation in a simple language means the study of Taxation beyond the National Level. Though we all are very much aware about our Indian Taxation Laws but as time is demanding something more so, there is a need to study the taxation at another level.

International taxes have recently become a broadly debated topic, because it became obvious that achieving the UN-Millennium Development Goals (MDG) would need a huge amount of additional financing. The process of economic globalization reveals the need for international taxation. As a consequence of the transnationalisation of economics and communications, new possibilities have emerged to create profits.

Need of International Taxation

International taxation is necessary, because globalisation leads to an erosion of national tax systems. Global players and international investors use liberalization and deregulation, tax loopholes and tax havens to save taxes on a large scale. Currently we are experiencing a re-feudalization of tax systems, i.e. the economically powerful pay less and less and the tax burden on middle and lower incomes increases. This leads to a permanent structural crisis in public finances and a massive redistribution from below to the top.

International taxes can play a major role in regulating and shaping globalisation, both with regard to their steering effect, for instance ecologically, distributive or regulatory, as well as through the tax revenues themselves.

Double Taxation

Double taxation is a tax principle referring to income taxes paid twice on the same source of income. It can occur when income is taxed at both the corporate level and personal level. Double taxation also occurs in international trade or investment when the same income is taxed in two different countries.

Double taxation occurs when a taxpayer is subject to comparable tax on the same income or gains in more than one country, which in effect taxes income twice.

International businesses are often faced with issues of double taxation. Income may be taxed in the country where it is earned, and then taxed again when it is repatriated in the business’ home country. In some cases, the total tax rate is so high, it makes international business too expensive to pursue.

Double Taxation Relief

Relief from double taxation can be providing in mainly two ways:

• Bilateral Relief: under this method, Government of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which the relief is to be granted. India has entered into agreement for relief against or avoidance of double taxation with more than 100 countries which include Sri Lanka, Switzerland, Sweden, Denmark, Japan, Federal Republic of Germany, Greece, etc.

• Unilateral Relief: This method provides for relief of some kind by the home country even where no mutual agreement has been entered into by the two countries.

Transfer pricing

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. Transfer pricing as a concept traditionally began with the amount charged by one segment of an enterprise for a product or service that it supplied to another segment of the same enterprise 

Controlled foreign corporation (CFC)

A controlled foreign corporation (CFC) is a corporate entity that is registered and conducts business in a different jurisdiction or country than the residency of the controlling owners.

I presume you mean “controlled foreign corporation” regulations. Many different countries have their own CFC regulations including Australia, the USA, etc. These laws essentially create a situation where the company needs to abide by the rules of multiple jurisdictions, and not just the one of incorporation.

Controlled foreign corporation (CFC) Regulation is one such set of anti-avoidance measures. Taxation of foreign passive income is at the heart of CFC regulation.

Black money and imposition of tax act

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is an Act of the Parliament of India. It aims to curb black money, or undisclosed foreign assets and income and imposes tax and penalty on such income. The Act has been passed by both the Houses of the Parliament.

Undisclosed asset outside India is defined to mean asset (including financial interest in any entity) located outside India, held by assessee in his own name or in respect of which he is beneficial owner, and he has no or unsatisfactory explanation about the source of information.

• Rate of tax and relevant provisions

Incomes from undisclosed asset (which is not included in return or return itself if not filed) are chargeable to tax @ 30% (without any deduction otherwise allowed under IT Act)

In case the source of acquiring such undisclosed assets were already offered to income tax or income from undisclosed assets already has suffered income tax the same will not be taxed again under this Act.

• Tax authorities(Section 6)

Income Tax authorities specified under Section 116 of income Tax Act, 1961 would be the Tax authorities for the purpose of this Act.

Such authorities have to exercise the power and perform the function of a tax authority under this Act in respect of a person within his jurisdiction.