TAXATION OF FOREIGN-SOURCE EARNINGS AND DOUBLE TAXATION
Just about every nation claims the appropriate to tax earnings originating inside its borders. National philosophies relating to the taxation of foreign-source earnings differ, having said that, and this is very important from a tax-planning point of view. A handful of nations, which include France, Hong Kong, Panama, and Venezuela, adopt the territorial principle of taxation and exempt from taxation the earnings of resident corporations generated outside their borders. This reflects the concept that tax burdens of foreign affiliates should really equal those of their neighborhood competitors. In this view, foreign affiliates of neighborhood providers are viewed as foreign providers that take place to become owned by neighborhood residents.
Most nations (e.g., Australia, Brazil, China, the Czech Republic, Germany, Japan, Mexico, the Netherlands, the United Kingdom, plus the Usa) adopt the worldwide principle and tax resident corporations and citizens on earnings no matter national boundaries. The underlying notion right here is the fact that a foreign subsidiary of a neighborhood enterprise is basically a neighborhood enterprise that takes place to operate abroad.
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