Page 29 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

The Effect of Withholding Tax

There is another way in which jurisdictions can mitigate the
effect of leverage on their tax revenues, the application of
withholding tax. The withholding tax can in principle
counteract the tax base-shifting effect of leverage.

Let’s assume the same information as in Graphs A and B above,
except that in this example we add the effect of tax
withholding. Countries A and B impose the same tax rate of
30%, country B imposes a 30% tax withholding on interest and
country A gives full credit for such withholding tax. In this
situation, the tax imposed by each country in each of the
examples will be the same.

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