International double taxation

Double taxation in international scope

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International double taxation is the symmetry of "domestic double taxation". Refers to the double taxation in the international scope. That is, two or more countries repeatedly levy taxes on the same tax object or tax source of the same or different transnational taxpayers in the same tax period. International double taxation makes transnational taxpayers bear double or even multiple taxes, which inevitably weakens their international competitiveness and affects their enthusiasm for transnational investment, which is not conducive to the reasonable flow of people, finance and goods between countries and the smooth progress of international economic division and cooperation. Therefore, countries in dealing with international tax relations, Both countries strive to seek ways and means to reduce and exempt international double taxation unilaterally or bilaterally.^[1]

Chinese name: International double taxation

Foreign name: international double taxation
Type: Double taxation in international scope

catalog

▪ two rate system
▪ conversion system

meaning

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International double taxation refers to the fact that two countries Tax jurisdiction The same tax object of the same taxpayer shall be taxed at the same time according to the same tax type within the same tax period.

There are two preconditions for international double taxation:

First, taxpayers, including natural persons and legal persons, have transnational income, that is, they obtain income or possess property in countries other than their countries of residence;

Second, both countries exercise tax jurisdiction over the same taxpayer.

The two countries have repeated jurisdiction over the same taxpayer, which mainly means that one country has jurisdiction based on resident tax and the other country has jurisdiction based on Tax jurisdiction of income source The same income of the same taxpayer shall be subject to double taxation.

International overlapping taxation It is mainly that one country taxes the company located in its own territory and another country taxes the shareholders residing in its territory on the income from the same source. There are at least two differences between it and international double taxation:

First, the international double taxation of different taxpayers refers to the double taxation of the same income of the same taxpayer; International overlapping taxation is to tax the same income of different taxpayers twice or more times. At the same time, in general, at least one of the two taxpayers of international overlapping taxation is a company; In international double taxation, sometimes only individuals are involved, not companies.

Second, taxes may be different. International double taxation refers to the double taxation of the same income by the two countries according to the same tax category; however International overlapping taxation If the shareholder is also a company, the two countries will tax separately according to the same tax category; if the shareholder is an individual, the one country will Corporate income tax It is collected by the other country according to the individual income tax.

Elimination or mitigation

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There are two specific ways to resolve the conflict between international law and domestic law:

First, the conflict rules completely assign the tax right of a tax object to one party, and exclude the tax right of the other party to the tax object;

Second, it is stipulated that both parties can share the right to tax a certain tax object, and the income source country will have priority in tax collection, and then the country of residence will take corresponding measures to avoid international double taxation. These measures mainly include:

Tax-free system

The tax exemption is to give up the residents' income from abroad and property located abroad Tax jurisdiction , just press Tax jurisdiction of income source Tax at source. The tax exemption system is generally stipulated by the domestic tax law, but it is also often included International tax treaties 。 It should be noted that, as a measure to avoid international double taxation, it is different from providing Tax preference And the tax exemption implemented.

implement Tax-free system The majority of the countries in the world are those in continental Europe and Latin America. According to whether the tax exemption is complete or not, it can be divided into two types: one type of countries completely exempt foreign income from taxes and implement a complete tax exemption system, thus completely avoiding international double taxation.

On the other hand, the tax exemption system of other countries is not complete. They only exempt overseas business income and labor income of their own residents, and do not exempt investment income. Therefore, relying on the tax exemption system alone cannot completely solve the problem of international double taxation.

Tax-free system In the specific implementation of, there are also all tax exemption methods and method of exemption with progression Points. According to the former, it is not included in the tax-free foreign income, but according to the latter, it is included. Compared with the applicable tax rate, the former is lower and the latter is higher.

Credit system

Credit system, also known as foreign countries Tax credit It is one of the methods to solve international double taxation in line with conflict norms, and is adopted by most countries in the world. According to the credit system, taxpayers can pay the income tax actually paid in the source country Taxes It is credited against the income tax payable to the country of residence. Countries with credit system recognize the source of income Tax jurisdiction The principle of priority, at the same time, does not give up the domestic tax jurisdiction.

Credit system Direct credit And Indirect credit Points. The direct credit is right Transnational taxpayer Credit given for income tax paid directly in the source country of income, e.g Corporate income tax Withholding tax paid by subsidiaries when remitting dividends and individual income tax paid by individuals. Any income tax directly paid by non taxpayers to the source country of income, if credit is allowed, is an indirect credit.

The credit system can also be divided into unilateral credit and bilateral credit. Unilateral credit refers to the unilateral provision of domestic law that credits the income tax paid by domestic residents abroad. Bilateral credit means that Bilateral tax treaty Only the contracting parties can grant credits respectively according to the provisions of.

The credit system can also be divided into full credit and limit credit. According to the former, the total amount paid by the taxpayer in the source country Taxes Can be credited. According to the latter, the amount of credit shall not exceed the taxpayer's foreign income according to the income tax of the country of residence tax rate Taxes payable. When the income tax rate in the source country is lower than or equal to the income tax rate in the country of residence, there is no difference between the full credit and the limit arrival credit. However, when the income tax rate is lower than, the taxpayer should pay the difference between the two tax rates to the country of residence.

When the income tax rate of the source country is higher than the income tax rate of the country of residence, the part exceeding the tax payable at the tax rate of the country of residence cannot be reduced. However, a few countries that implement quota credit have stipulated that when there is an excess quota in previous and subsequent tax years, the excess part is allowed to be offset by the method of reversal and carry forward. The so-called excess limit refers to the unused part of the allowable credit limit in a certain year.

There are also national quotas and comprehensive quotas. The national quota is to calculate the foreign income of local residents in different countries. Each country has a quota. The comprehensive limit refers to the comprehensive calculation of the foreign income of domestic residents as a whole. All countries share the same limit. The calculation formula is as follows:

Taxable income of a foreign country

Country limit=all taxable income of the country of residence and a foreign country

All foreign taxable income

Comprehensive limit=all taxable income at home and abroad

from Transnational taxpayer From the perspective of, the individual limit and the comprehensive limit have their own strengths and weaknesses. When multinational taxpayers invest in both high tax rate countries and low tax rate countries, such as comprehensive calculation Taxes They are often credited; For example, the tax paid in countries with high tax rates cannot be fully offset if calculated in different countries. For countries with low tax rates, although there is an excess limit after the credit, it cannot be adjusted with countries with high tax rates because of the calculation in different countries. In this case, the comprehensive limit is obviously superior to the individual limit. However, when a foreign branch has losses or gains, the loss making branch does not need to pay taxes or credit.

At the same time, according to the limit of each country, there is no need to offset the loss and profit, and the credit limit of the profitable branch will not be reduced, thus Transnational taxpayer Favorable; According to the comprehensive limit, Break even The numerator value is reduced and the quota is reduced, which is unfavorable to transnational taxpayers. In the latter case, the national quota is superior to the comprehensive quota.

Considering the country of residence that implements the credit system, the advantage of the comprehensive limit is that the foreign losses of multinational taxpayers should be offset by the foreign surplus first. As long as the foreign profits exceed or equal to the foreign losses, the domestic profits will not be affected by the foreign losses, and the tax payable for domestic profits will not be reduced.

If the quota is divided into different countries, because foreign profits and losses cannot offset each other, the losses can only be offset by domestic profits, which will inevitably affect domestic taxes. Another advantage of the comprehensive limit to the country of residence is that because foreign profits and losses offset each other, the numerator value in the calculation formula must be reduced, and the amount of credit should also be reduced accordingly.

In addition, it should be pointed out that some countries implement itemized credit, that is, the credit amount of certain special items is calculated separately. Among the countries that implement itemized credit, some countries implement different programs tax rate ； Some are aimed at other countries to prevent Transnational taxpayer Use the low tax rate of some projects in other countries to level the high tax rate of others, so as to achieve the purpose of crediting all taxes paid. When implementing itemized credit, the formula for calculating special limit is:

Taxable income of a specific foreign item

Special limit=all taxable income of this special item at home and abroad

Deduction system

It means that the country of residence allows the tax paid abroad to be deducted from the total taxable income when taxing the taxpayer, thus reducing the tax burden of the taxpayer to a certain extent.

Tax reduction system

The tax reduction system is that the country of residence gives a certain amount of tax relief to the income of its residents from abroad, such as applying a low tax rate to foreign income or taxing according to a certain percentage of foreign income. Compared with other methods to avoid international double taxation, the tax reduction system is the most flexible. Because of this, the tax reduction rates of countries adopting the tax reduction system are uneven, or even quite different.

The tax reduction system is also a way to alleviate international double taxation.

In the above four methods, the first two are the main ones, while the latter two can only play a role of mitigation, but only auxiliary.

Dividend income country

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1. Exemption or exemption of income tax on dividends from abroad

It is a common practice in many countries to reduce or exempt income tax on dividends from foreign sources. This method can be solved to a certain extent or fundamentally International overlapping taxation Problems. However, certain conditions must be met for the reduction or exemption of income tax on dividends from foreign sources. The most common condition is that the company receiving the dividend must hold a certain number of shares in the company paying the dividend.

Various countries have different regulations on shareholding ratio, most of which are more than 25%. In addition to the shareholding ratio, some countries often require some other conditions, such as that the shares must be held for a certain period of time, etc.

2. The parent company and subsidiary company are allowed to make consolidated tax returns

It is allowed to merge the domestic parent company and foreign subsidiaries for tax declaration. Yes Dividend income Another measure of China to avoid international overlapping taxation. However, there are not many countries that implement this measure, and they often stipulate that the shares of subsidiaries held by the parent company must be 100%, 95% or 90% of all shares of subsidiaries, with the minimum being more than 50%. In terms of formalities, some countries stipulate that consolidated tax returns must be approved by the Minister of Finance. In fact, the approval of consolidated tax declaration is to treat the parent company and subsidiaries in the same way as the parent company and subsidiaries.

3. Implementation Indirect credit

The implementation of indirect credit is Dividend income National settlement International overlapping taxation Is an important measure. Indirect credit only occurs when the parent company and subsidiary company are located in two countries. Since the subsidiary company is an independent legal person Taxes It has nothing to do with the parent company, and the country where the parent company is located does not have to give it Direct credit 。

However, after all, the capital of the subsidiary is from the investment of the parent company, and its profits are the investment income of the parent company. After the subsidiary pays taxes to the country where it is located, the parent company must pay the tax according to the amount received dividend Paying taxes to the country where the parent company is located, resulting in overlapping tax burdens. In some cases, for example, the country where the parent company is located pays taxes to the subsidiary company in its country Corporate income tax Giving credit can avoid international overlapping taxation, which is called indirect credit in international tax law.

According to the internationally accepted principles, the following conditions must be met to enjoy indirect credit treatment:

First, the beneficiaries must be legal person shareholders, not natural person shareholders;

Second, the corporate shareholder must be a direct investor, not a dividend holder Securities investors ；

Third, as direct investors, corporate shareholders must have a certain number of voting shares in dividend paying companies. In this regard, domestic tax laws or International tax treaties There are specific provisions in.

Indirect credit There are also credit limits. General countries Direct credit The provision on the credit limit in, that is, the amount of credit shall not exceed the income tax payable to the country providing the credit based on foreign income, is also applicable to indirect credit. Therefore, when implementing indirect credit, the credit limit must also be determined. The specific calculation method is as follows:

First, calculate the deemed tax amount, that is, the proportionate share of the income tax paid by the dividend paying subsidiary to its country of residence belongs to the dividend, and this share is deemed to be the income tax paid by the parent company receiving the dividend to the country of residence of the subsidiary.

Secondly, calculate the taxable income of the parent company from abroad, that is, the sum of the dividends of the parent company and the amount of tax deemed.

Finally, the foreign taxable income of the parent company is multiplied by the Corporate income tax tax rate That is, the indirect credit amount that the parent company's country should give to the parent company.

If the parent company dividend Assumed Taxes And Indirect credit If the limit is equal, all credits can be obtained; If it is lower than the indirect credit limit, the difference shall be made up after all credits; If it is higher than the indirect credit limit, the excess part is generally not allowed to be credited.

about Multilayer indirect credit For the third tier, the first step is to calculate the deemed tax amount of the subsidiary, the income and indirect credit amount from the subsidiary of another country (i.e. the subsidiary of the subsidiary itself). Step 2 Calculate the deemed tax amount of the parent company

Two points should be paid attention to:

First, the "income tax of the country where the subsidiary is located" in the supplementary formula should be the tax amount calculated by subtracting the indirect credit amount calculated in the first step from the taxable amount of all the income of the subsidiary (i.e. the income of the subsidiary itself+the income from the subsidiary) at the rate;

Second, the "after tax income of subsidiaries" in the supplementary formula should be "income of subsidiaries themselves+income from subsidiaries - indirect credits have been deducted Taxes ”

stay Dividend income On the national side, in addition to the above three measures, if some countries only implement income sources Tax jurisdiction , income from foreign sources, including dividends, is exempt from tax, and will not occur International overlapping taxation 。

Dividend paid abroad

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two rate system

Double tax rate system, also known as split tax rate system Federal Germany It was first implemented on January 1, 1953. The specific approach is to apply different corporate tax rates to profits used for dividend distribution and profits not used for dividend distribution. The former is low in tax rate, while the latter is high in tax rate. Since the company's profits used for distribution are taxed at a low tax rate, shareholders receive more dividends, and after paying their own income taxes, the remaining dividends are also more. This, to a certain extent, alleviates the overlapping taxation tax burden 。 Germany Austria , Japan, Finland, Norway, etc.

conversion system

The conversion system is also known as countervailing. It was initiated by France on January 1, 1966. The specific method is that the company pays according to the tax law Corporate income tax , and use the after tax profits to distribute dividends. For shareholders who have distributed dividends, the national treasury will return a certain proportion of the amount of dividends received to the company Taxes 。

Then, use dividend Income tax is levied on shareholders at the applicable tax rate based on the sum of the tax refunded, and the tax balance is the net dividend income. If the income tax paid by shareholders is equal to or less than the tax refund, this completely avoids overlapping taxation. If it is greater than the tax refund, the overlapping tax will also be reduced.

At the same time, the income tax paid by the company can also be directly converted to offset the income tax that should be paid by shareholders without returning it to shareholders. Countries that implement the conversion system mainly include France, Britain Ireland , Italy and Germany, but the tax rebate rates vary from country to country, and often change from year to year.

double tax rate The system and the conversion system have their own characteristics. The double tax rate system is characterized by reducing the tax burden of companies to ease the contradiction of overlapping taxes, while shareholders still pay taxes according to regulations. The conversion system is characterized by reducing the tax burden of shareholders to solve the problem of overlapping taxes, while the income tax payable by the company is not reduced.

At the same time, the conversion system is based on the confirmation that shareholders are actually required to pay income tax after dividends are distributed drawback The double tax rate system only reduces the tax burden on the profits that the company uses to share, and does not ask whether shareholders should pay income tax after they receive dividends. In solving International overlapping taxation Generally speaking, the effect of conversion system is better.

However, countries that invest in the dual tax rate system can generally enjoy the treatment of dual tax rates; Countries that implement the conversion system generally do not allow non residents to enjoy the treatment of the conversion system Bilateral tax treaty Only residents of the other Contracting State can enjoy such treatment if they are employed by the party that implements the conversion system. However, few bilateral tax treaties contain such provisions.

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