4. Types of double taxation:
Double taxation is juridical
when the same person is
J U R ID IC A L taxed twice on the same
income by more than one
state.
Double taxation is
economic if more than one
person is taxed on the
same item.
5. Juridical double taxation arises:
1) where each Contracting State subjects the same person to
tax on his worldwide income or capital;
2) where a person is a resident of a Contracting State (R) and
derives income from, or owns capital in, the other Contracting
State (S or E) and both States impose tax on that income or
capital;
3) where each Contracting State subjects the same person, not
being a resident of either Contracting State to tax on income
derived from, or capital owned in, a Contracting State; this
may result, for instance, in the case where a non-resident
person has a permanent establishment in one Contracting
State (E) through which he derives income from, or owns
capital in, the other Contracting State (S).
6. AGENDA
Chapter V
METHODS FOR ELIMINATION
OF
DOUBLE TAXATION
ARTICLE 23 A
EXEMPTION METHOD
ARTICLE 23 B
CREDIT METHOD
7. Principle of exemption method
… the State of residence
R does not tax the
income which according
to the Convention may
be taxed in State E or S.
8. Principle of credit method
…the State of residence R
calculates its tax on the basis
of the taxpayer's total income
including the income from the
other State E or S which,
according to the Convention,
may be taxed in that other
State. It then allows a
deduction from its own tax for
the tax paid in the other
State.
9. E X E M P T IO
N
the income which may be taxed in State E or S is not
taken into account at all by State R for the purposes of its
tax; State R is not entitled to take the income so
exempted into consideration when determining the tax to
be imposed on the rest of the income; this method is
called “full exemption”;
the income which may be taxed in State E or S is not
taxed by State R, but State R retains the right to take
that income into consideration when determining the tax
to be imposed on the rest of the income; this method is
called “exemption with progression”.
10. C R E D IT
State R allows the deduction of the total amount of tax
paid in the other State on income which may be taxed in
that State, this method is called “full credit”;
the deduction given by State R for the tax paid in the
other State is restricted to that part of its own tax which
is appropriate to the income which may be taxed in the
other State; this method is called “ordinary credit”.
11. an artiste earns 80,000 at home in
State R(esidence) and 20,000 abroad
in State S(ource) = worldwide income
of 100,000;
in State R the tax rates are
progressive, namely 35% (average)
on an income of 100,000 (= 35,000)
and 30% (average) on an income of
80,000 (= 24,000);
in State S the tax rate is either 20%
(in case I) or 40% (in case II), leading
to 4,000 or 8,000 source tax
12. Without any relief for double taxation, the total
initial tax burden would be:
Case I Case II
Tax in state R, 35 % of 100,000 35,000 35,000
+ tax in State S 4,000 8,000
Total taxes 39,000 43,000
13. With the “full exemption”, the home country, State R,
simply omits the foreign income from its own taxation
and only imposes tax on the domestic income of
80,000, at 30%:
Case I Case II
Tax in state R, 30 % of 80,000 24,000 24,000
+ tax in State S 4,000 8,000
Total taxes 28,000 32,000
Tax relief given by State R 11,000 11,000
14. With the “exemption with progression”, domestic income
is taxed at the tax rate for worldwide income, i.e. 35%:
Case I Case II
Tax in state R, 35 % of 80,000 28,000 28,000
+ tax in State S 4,000 8,000
Total taxes 32,000 36,000
Tax relief given by State R 7,000 7,000
15. With the “full credit”, the home country, State R, simply
allows the deduction of the foreign-source tax from the
tax calculated on worldwide income:
Case I Case II
Tax in state R, 35 % of 100,000 35,000 35,000
less full tax in State S - 4,000 - 8,000
Tax due 31,000 27,000
Total taxes 35,000 35,000
Tax relief given by State R 4,000 8,000
16. With the “ordinary credit”, the home country, State R, also allows a
deduction of the foreign-source tax from the tax calculated on the
worldwide income, but not more than the proportion of tax that would
be attributable to the income from State S (maximum deduction). This
limitation to the average tax rate is a maximum of 35% x 20,000 =
7,000 in this example and applies in Case II:
Case I Case II
Tax in state R, 35 % of 100,000 35,000 35,000
Less tax in State S - 4,000
Less maximum tax - 7,000
Tax due in state R 31,000 28,000
Total taxes 35,000 36,000
Tax relief given by State R 4,000 7,000
17. Summary of the figures
1. Delivery
These figures can be summarized as follows:
Relief State R Tax State S Result
Full exemption 11,000 - 4,000 7,000
Exemption with progression 7,000 - 4,000 3,000
Full credit 4,000 - 4,000 0
Ordinary credit 4,000 - 4,000 0
C AS E
I
18. Summary of the figures
1. Delivery
Relief State R Tax State S Result
Full exemption 11,000 - 8,000 3,000
Exemption with progression 7,000 - 8,000 - 1,000
Full credit 8,000 - 8,000 0
Ordinary credit 7,000 - 8,000 - 1,000
C AS E
II
19. 1. Delivery Total taxes:
A. All income in State R Total tax=35,000
B. Income arising in two States,
viz. 80,000 in state R and 20,000 Total tax if tax in State S is
in State S
4,000 (case I) 8,000 (case II)
No convention 39,000 43,000
Full exemption 28,000 32,000
Exemption with progression 32,000 36,000
Full credit 35,000 35,000
Ordinary credit 35,000 36,000
20. Taxes ery
1. Deliv given up by the State R
Total tax if tax in State S is
8,000 (case
4,000 (case I) II)
No convention 0 0
Full exemption 11,000 11,000
Exemption with progression 7,000 7,000
Full credit 4,000 8,000
Ordinary credit 4,000 7,000
21. DEDUCTION METHOD
1. Delivery
The deduction method
allows residents/citizens to
deduct foreign taxes paid
treating them as a current
expense so it becomes the
effective means of
providing relief when there
is no Tax treaty.
22. DEDUCTION METHOD
1. Delivery
…anyone in the United States with unlimited tax liability
on his full worldwide income can choose not to take a
tax credit for foreign tax, but to deduct the foreign tax
as a business expense, so that the tax base will
become considerably lower.
Germany also gives its residents with unlimited tax
liability the option of choosing the deduction of the
foreign tax from worldwide income as a business
expense.
Deduction of foreign artiste tax as an expense is
allowable in the Netherlands when no tax treaty is
applicable and the unilateral rules for elimination of
double taxation apply, giving residents the option to
choose between either an ordinary tax credit or the
deduction of foreign tax from taxable income
23. DEDUCTION METHOD
1. Delivery
When the foreign
(artiste) tax is high or
domestic income is low
or negative, the choice
of a deduction as an
expense might become
advantageous.
24. TAX Delivery OF KAZAKHSTAN
1. CODE
Chapter 27
SPECIAL CONSIDERATIONS
IN TAXATION OF INCOME OF
RESIDENTS FROM FOREIGN
ECONOMIC OPERATIONS
ARTICLE 223
25. TAX Delivery OF KAZAKHSTAN
1. CODE
Article 223(1). Offset of Foreign Tax
Amounts of taxes paid beyond the
boundaries of the Republic of
Kazakhstan on income or of taxes
similar to income tax, from income
received by the resident taxpayer from
sources beyond the boundaries of the
Republic of Kazakhstan, shall be subject
to offset against the payment when
paying corporate or personal income tax
in the Republic of Kazakhstan, provided
a document confirming the payment of
such tax is available.
26. TAX CODE OF KAZAKHSTAN
Article 223(2). Offset of Foreign Tax
Offset of foreign tax shall not be granted in the Republic
of Kazakhstan from the following types of income of a
resident taxpayer from sources beyond the boundaries
of the Republic of Kazakhstan:
1) exempt from tax in accordance with provisions of
this Code;
2) subject to adjustment in accordance with Article 99
of this Code;
3) taxable in the Republic of Kazakhstan in accordance
with provisions of the international treaty, irrespective of
the fact of payment and (or) withholding of taxes from
such income in the foreign state within the excessively
paid amount of tax in the foreign state. In this respect,
amounts of tax paid in excess shall be determined as
the difference between the actually paid tax amount and
the amount of tax to be paid in the foreign state in
accordance with the provisions of the international
treaty.
27. TAX CODE OF KAZAKHSTAN
Article 223(3). Offset of Foreign Tax
Amounts to be offset as provided for by this Article,
shall be determined for each foreign state
separately.
In that respect, amounts of tax to be offset,
shall represent the smaller of the following
amounts:
1) amount of tax actually paid in a foreign
state from income received by the resident
taxpayer from sources beyond the boundaries of
the Republic of Kazakhstan;
2) amounts of income tax from income
from sources beyond the boundaries of the
Republic of Kazakhstan, assessed in the Republic
of Kazakhstan in accordance with the provisions of
this Chapter and Sections 4 or 6 of this Code, and
also provisions of the international treaty.
28. TAX CODE OF KAZAKHSTAN
Article 223(4). Offset of Foreign Tax
In order to assess the total amount of
credit of income tax paid in a foreign state
from income received from sources in
that state, the resident shall compile
appropriate supplement to the corporate
or personal income tax declaration.
29. TAX TREATY KZ-USA
Article 23
Relief from double taxation
In accordance with the provisions and subject to
the limitations of the law of each Contracting
State …, each State shall allow to its residents
(and, in the case of the United States, its
citizens), as a credit against the income tax of
that State:
(a)the income tax paid to the other Contracting
State by or on behalf of such residents or
citizens; and(b)in the case of a company owning
at least 10 percent of the voting stock of a
company which is a resident of the other
Contracting State and from which the first-
mentioned company receives dividends, the
income tax paid to the other State by or on
behalf of the distributing company with respect to
the profits out of which the dividends are paid.
30. TAX TREATY1. KZ-BELGIUM
Article 23
Elimination of double taxation
3.In the case of Kazakhstan, double taxation shall be
avoided as follows:
Where a resident of Kazakhstan derives income or owns
capital which, in accordance with the provisions of this
Convention, may be taxed in Belgium, Kazakhstan shall allow:
• as a deduction from the tax on the income of that resident,
an amount equal to the income tax paid in Belgium;
• as a deduction from the tax on the capital of that resident, an
amount equal to the capital tax paid in Belgium.
Such deduction in any case shall not exceed the tax
assessed on the same income or capital in Kazakhstan at the
rates in effect therein.
Where a resident of Kazakhstan derives income or owns
capital which, in accordance with the provisions of this
Convention, shall be taxable only in Belgium, Kazakhstan may
include this income or capital in the tax base but only for
purposes of determining the rate of tax on such other income
or capital as is taxable in Kazakhstan.
31. In the case of Belgium, double taxation shall be avoided as follows:
TAX TREATY1. KZ-BELGIUM
Article 23
Elimination of double taxation
2. In the case of Belgium, double taxation shall be
avoided as follows:
Where a resident of Belgium derives income or
owns elements of capital which are taxed in
Kazakhstan in accordance with the provisions of
this Convention, other than those of paragraph 2 of
Article 10, of paragraphs 2 and 7 of Article 11 and
of paragraphs 2 and 6 of Article 12, Belgium shall
exempt such income or such elements of capital
from tax but may, in calculating the amount of tax
on the remaining income or capital of that resident,
apply the rate of tax which would have been
applicable if such income or elements of capital
had not been exempted.
