There are two types of double taxation: economical and juridical (international). Double economical taxation is related to the taxation of two and more taxes from one tax basis. As an example can be presented the situation when the profit of the corporation first is taxed and after being distributed among the stockholders and it is taxed again as dividend tax. Also the double taxation can occur when indirect taxes are levied, for instance, when the goods are levied excise tax, and after this VAT is imposed on the price of the goods, including excise.
International double taxation is levying on one taxpayer in one or more countries for one object in the same period of time, which results in identical tax payment, and brings to coincidence of tax object, of tax subject and the period of tax payment. Countries can levy income taxes using the principal of residence, or territorial principal. Double taxation is possible when one country is using residence principal in levying taxes, and the other country is using territorial principal. The double taxation can also occur in the situation when both countries affirm that the taxpayer is their resident, or when each of the countries affirms that the profit was made on its territory. Double taxation restrains the economical activity of the entrepreneur, it influences the growth of prices for goods and services, it increases tax burden on juridical and physical subjects, and also it violates the principal of tax fairness.
Elimination of the Double Taxation
The measures that are used for prevention of double taxation can be unilateral measures that are related to the norms of internal taxation legislation and multilateral measures that are implemented using the international conventions and agreements.
Unilateral measures include the taxation tools that are foreseen by the national legislation:
- Taxation set-off (credit) implies that the taxes paid abroad are set-off in internal tax obligations;
- Tax abatement, implies that the taxes paid abroad are deducted from the amount of profit to be taxed.
Multilateral measures implies signing of international conventions in order to avoid double taxation, in which is stipulated the order of levying of profits and assets. International conventions signed in order to avoid double taxation and prevention of tax evasion have as a goal to create such conditions that would exclude situation when juridical and physical subject would be double taxed. It is coordinated by the negotiating governments, directed to prevent the tax evasion and taxation discrimination in any form, and distribution of taxation rights among the negotiating countries.