Methods to avoid Double Taxation

What is the main cause of legal double taxation?

• A taxpayer is taxed by two jurisdictions on the same income.

• Multiple taxpayers are taxed on the same income.

• The income is taxed both at the corporate and personal level.

• The income is exempt in one jurisdiction.

What is economic double taxation?

• Income taxed once but at high rates.

• The same income taxed multiple times in the hands of different taxpayers.

• Income generated abroad is only taxed in the country of origin.

• The tax is reduced through exemptions.

What principle causes Country A to tax Company A on its worldwide income?

• Principle of origin

• Principle of residence

• Principle of exemption

• Territorial principle

Under the OECD Model Tax Convention, what is the main objective of double taxation treaties?

• Avoid tax collection altogether

• Create balance between taxation at source and residence

• Increase total tax revenue

• Mandate exclusive taxation at source

Which of the following is NOT a method to avoid double taxation under the OECD Model Tax Convention?

• Credit method

• Deduction method

• Exemption method

• Allocation method

What does the 'exemption method' imply?

• The country of residence ignores the income taxed in the country of origin.

• The country of origin taxes at a reduced rate.

• The country of residence offers a partial tax refund.

• The country of residence calculates the total tax but gives a credit for foreign taxes.

What is the credit method in double taxation?

• A method to apply deductions based on foreign expenses.

• A system where income taxed abroad is also taxed at the national level with a credit for foreign taxes paid.

• Exclusive tax jurisdiction for the country of origin.

• Only the income tax of the country of residence is applied.

In the ordinary credit method, the allowed foreign tax credit is limited to what amount?

• The foreign tax paid

• The total amount of income earned

• The tax that would be owed in the country of residence

• The difference between the taxes of the foreign country and the country of residence

Which type of taxpayers is the exemption method with progression mainly applied to?

• Corporations

• Partnerships

• Individuals

• Multinational corporations

What method to avoid double taxation adjusts foreign income through an accounting to tax adjustment?

• Total exemption method

• Credit method

• Exemption with progression

• Allocation method