Page 15 - Strategic Tax Planning for Global Commerce & Investment
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Strategic Tax Planning for Global Commerce and Investment
tax paid on the foreign income, but up
to the amount of domestic tax corre-
sponding to the foreign income (ordi-
nary credit).
4. Tax Treaties
Tax treaties are bilateral agreements that serve to harmonize
the tax systems of two countries and it applies not only to
companies but also to individuals involves in cross-border
investment or trade.
In the absence of a tax treaty, income from cross-border
transactions or investment would be subject to potential double
taxation. First by the country the income arises and again by
the country of the recipient’s residence.
The tax systems of most countries impose withholding taxes,
frequently at high rates, on payment of dividends, interest,
royalties and services to foreigners. Tax treaties are the
mechanisms by which these taxes are negotiated and lowered
on a bilateral basis.
As cross-border trade and investment expand, tax treaties are
playing an increasingly important role in preventing the
imposition of excessive and inappropriate taxes on global
businesses and in insuring the fairer and more efficient
application of the tax laws.
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