Page 51 - Microsoft Word - 00 P1 IW Prelims.docx

International operations and international investment appraisal

2.3 Double taxation

Questions will always assume that a double-tax treaty exists ⇒ project
always taxed at the higher rate.

Example 2

Three potential scenarios:

Home country tax rate Home country tax rate Home country tax rate
(say 20%) is LOWER (say 20%) is THE (say 20%) is HIGHER
than foreign tax rate SAME AS foreign tax than foreign tax rate
(say 30%) rate (say 20%) (say 15%)

⇒ ⇒ ⇒

Pay 30% tax in foreign Pay 20% tax in foreign Pay 15% in foreign
country only country only country AND an
additional 5% in home
country

39