Chapter Twenty International Tax 20 Environment Chapter objective This chapter provides a brief introduction to the international tax environment
INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 20 Chapter Twenty International Tax Environment Chapter Objective: This chapter provides a brief introduction to the international tax environment
Chapter Outline he objectives of Taxation o Types of Taxation o The National tax Environments o Organizational Structures for Reducing Tax Liabilities McGraw-Hilylrwoin 20-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-1 Chapter Outline ⚫ The Objectives of Taxation ⚫ Types of Taxation ⚫ The National Tax Environments ⚫ Organizational Structures for Reducing Tax Liabilities
The Objectives of Taxation o The twin objectives of taxation are 1. Tax Neutrality 2. Tax equit McGraw-Hilylrwoin 20-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-2 The Objectives of Taxation ⚫ The twin objectives of taxation are: 1. Tax Neutrality 2. Tax Equity
Tax Neutrality a tax scheme is tax neutral if it meets three criteria 1. Capital Export Neutrality: the tax scheme does not incentivise citizens move their money abroad 2. National Neutrality: taxable income is taxed in the same manner by the taxpayer 's national tax authorities regardless of where in the world it is earned 3. Capital Import Neutrality: the tax burden on a MnC Subsidiary should be the same regardless of where in the world the mnc in incorporated McGraw-Hilylrwoin 20-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-3 Tax Neutrality A tax scheme is tax neutral if it meets three criteria: ◼1. Capital Export Neutrality: the tax scheme does not incentivise citizens move their money abroad. ◼2. National Neutrality: taxable income is taxed in the same manner by the taxpayer’s national tax authorities regardless of where in the world it is earned. ◼3. Capital Import Neutrality: the tax burden on a MNC subsidiary should be the same regardless of where in the world the MNC in incorporated
Tax Equity o Tax equity: regardless of the country in which an affiliate of a mnc earns taxable income the same tax rate and tax due date should apply The principal of tax equity is difficult to apply; the organizational form of the mnc can affect the timing of the tax liability McGraw-Hilylrwoin 204 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-4 Tax Equity ⚫ Tax Equity: regardless of the country in which an affiliate of a MNC earns taxable income, the same tax rate and tax due date should apply. ⚫ The principal of tax equity is difficult to apply; the organizational form of the MNC can affect the timing of the tax liability
Types of Taxation ● Income aⅹ o Withholding Tax ° Value- Added Tax McGraw-Hilylrwoin 20-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-5 Types of Taxation ⚫ Income Tax ⚫ Withholding Tax ⚫ Value-Added Tax
Income ax o An income tax is a tax on personal and corporate Income Many countries in the world obtain a significant portion of their tax revenue from income taxes An income tax is a direct tax that is one that is paid directly by the taxpayer upon whom it is evie McGraw-Hilylrwoin Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-6 Income Tax ⚫ An income tax is a tax on personal and corporate income. ⚫ Many countries in the world obtain a significant portion of their tax revenue from income taxes. ⚫ An income tax is a direct tax, that is one that is paid directly by the taxpayer upon whom it is levied
Income Tax rates in Selected Countries 45 40 35 30 25 20 口 Income Tax Rate 15 10 5 沙八 McGraw-Hilylrwoin 20-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-7 Income Tax Rates in Selected Countries 0 5 10 15 20 25 30 35 40 45 Australia Bahamas Belgium Brazil China France Germany Ireland Japan Mexico United States Rate Income Tax Rate
Withholding Tax o Withholding taxes are withheld from the payments a corporation makes to the taxpayer The taxes are levied on passive income earned by an individual or corporation of one country within the tax jurisdiction of another country o Passive income includes dividends and interest income, income from royalties, patents, or copyrights o a withholding tax is an indirect tax McGraw-Hilylrwoin 20-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-8 Withholding Tax ⚫ Withholding taxes are withheld from the payments a corporation makes to the taxpayer. ⚫ The taxes are levied on passive income earned by an individual or corporation of one country within the tax jurisdiction of another country. ⚫ Passive income includes dividends and interest income, income from royalties, patents, or copyrights. ⚫ A withholding tax is an indirect tax
U.S. Tax Treaty Withholding rates Selected countries 35 30 25 口 DiVidends g20 口 Interest 15 口 Royalties 10 50 HHhH McGraw-Hilylrwoin 20-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 20-9 U.S. Tax Treaty Withholding Rates Selected Countries 0 5 10 15 20 25 30 35 Australia Bermuda Belgium Brazil China France Germany Ireland Japan Mexico Rate Dividends Interest Royalties