INTERNATIONAL TAXATION
EXAM QUESTIONS AND THEIR
REVIEWED CORRECT ANSWERS
Explain VAT?
- Tax on consumption
- A consumption tax system would shift the time of
collection from when money is earned to when money is
spent.
- If you are the end consumer you can get a tax return but
as a company but as a company you pay VAT but also
charge VAT for the government, with input and output
VAT.
- Output vat: sales, charges to our clients, input vat:
purchases and expenses, paid to our suppliers
- If vat is negative then you can ask for VAT refund or
carry forward. If VAT is positive it´s vat due. VAT is usually
paid quarterly but companies pay it monthly.
- Vat is a flat rate. Spains three different vat rates is:
Standard 21% ("vis attractiva" any other business)
Reduced 10% (restaurants, hotels,...)
Super-reduced 4% (medicines, books,...)
Exempted products/services 0% (education, medical
services)
What are the Key criterias to consider people fysical
residency in Spain?
- Presence test - to spend more than 183 days in a year
,- Center of Vital interest - Family ties like sprouse, kids
- Centre of economic interest - main assets, main sources
of income etc
Define:
Earning stripping?
- A method by which a business entity reduces its tax
liability by paying excessive amounts of interest to another
corporation.
Residency Principle?
world wide income is taxed in the country of
residence of the taxpayer
source principle?
each country taxes income obtained within their
boundaries
double taxation?
taxation both as corporate profit and as personal income.
it is due to the overlapping of tax jurisdictions
what is double taxation relief?
designed so you do not have to pay taxes twice on the
same income. it will be provided by the country of
residence, unilaterally (on its domestic legislation), or
because of the existence of an agreement among the
states.
What are the methods to provide double taxation relief
by the residence country
-pure exemption: country of residence refuses to tax
income obtained abroad (in source countries). only taxes
local income
-exemption with progressivity: country of residence
, refuses to tax income obtained abroad, but takes the
foreign income into consideration to work out the tax rate
that will be applied to local income
-full credit method: country of residence taxes world wide
income, but taxes paid abroad (foreign tax credits) can be
subtracted from tax liability, without limitation
-partial credit method: same than full credit method
(country of residence taxes world wide income), but taxes
paid abroad can be subtracted from liability up to a limit:
what foreign income would have paid in residence country.
-deduction method: country of residence taxes world wide
income, but taxes paid abroad can be subtracted from the
taxable base
Explain parent-Subsidiary directive and the
requirements
Refers to the structure of the company where one entity,
the parent company, owns a controlling interest in another
entity, the subsidiary. The parent company typically has
majority ownership which gives it control over the
subsidiary operation, management and decision making.
•Applies to the distribution of dividends between Parent -
Subsidiary EU companies •The P-S relation: It requires a
minimum holding of 10% in the capital of the company
•Minimum holding period can be requested to apply the
Directive (in Spain, 1 year )
•Effect: Exclusive taxation at residence country (no WH
EXAM QUESTIONS AND THEIR
REVIEWED CORRECT ANSWERS
Explain VAT?
- Tax on consumption
- A consumption tax system would shift the time of
collection from when money is earned to when money is
spent.
- If you are the end consumer you can get a tax return but
as a company but as a company you pay VAT but also
charge VAT for the government, with input and output
VAT.
- Output vat: sales, charges to our clients, input vat:
purchases and expenses, paid to our suppliers
- If vat is negative then you can ask for VAT refund or
carry forward. If VAT is positive it´s vat due. VAT is usually
paid quarterly but companies pay it monthly.
- Vat is a flat rate. Spains three different vat rates is:
Standard 21% ("vis attractiva" any other business)
Reduced 10% (restaurants, hotels,...)
Super-reduced 4% (medicines, books,...)
Exempted products/services 0% (education, medical
services)
What are the Key criterias to consider people fysical
residency in Spain?
- Presence test - to spend more than 183 days in a year
,- Center of Vital interest - Family ties like sprouse, kids
- Centre of economic interest - main assets, main sources
of income etc
Define:
Earning stripping?
- A method by which a business entity reduces its tax
liability by paying excessive amounts of interest to another
corporation.
Residency Principle?
world wide income is taxed in the country of
residence of the taxpayer
source principle?
each country taxes income obtained within their
boundaries
double taxation?
taxation both as corporate profit and as personal income.
it is due to the overlapping of tax jurisdictions
what is double taxation relief?
designed so you do not have to pay taxes twice on the
same income. it will be provided by the country of
residence, unilaterally (on its domestic legislation), or
because of the existence of an agreement among the
states.
What are the methods to provide double taxation relief
by the residence country
-pure exemption: country of residence refuses to tax
income obtained abroad (in source countries). only taxes
local income
-exemption with progressivity: country of residence
, refuses to tax income obtained abroad, but takes the
foreign income into consideration to work out the tax rate
that will be applied to local income
-full credit method: country of residence taxes world wide
income, but taxes paid abroad (foreign tax credits) can be
subtracted from tax liability, without limitation
-partial credit method: same than full credit method
(country of residence taxes world wide income), but taxes
paid abroad can be subtracted from liability up to a limit:
what foreign income would have paid in residence country.
-deduction method: country of residence taxes world wide
income, but taxes paid abroad can be subtracted from the
taxable base
Explain parent-Subsidiary directive and the
requirements
Refers to the structure of the company where one entity,
the parent company, owns a controlling interest in another
entity, the subsidiary. The parent company typically has
majority ownership which gives it control over the
subsidiary operation, management and decision making.
•Applies to the distribution of dividends between Parent -
Subsidiary EU companies •The P-S relation: It requires a
minimum holding of 10% in the capital of the company
•Minimum holding period can be requested to apply the
Directive (in Spain, 1 year )
•Effect: Exclusive taxation at residence country (no WH
