ECONOMIC DOUBLE TAXATION
Economic double taxation -> “Imposition of comparable taxes by 2 (two) or more taxing jurisdictions on
different taxpayers in respect of the same income”
o Contrary to juridical double taxation (where the focus is on the taxable person – which is taxed
twice), economic double taxation is focused on the economic income (indeed it is intended to
mitigate the fact that the same item of income is taxed in the hands of different taxpayers)
Characteristics of economic double taxation:
1) Comparable taxes
- The taxes must be of comparable nature (similar) -> es VAT v Income tax (not similar)
2) Two or more jurisdictions
- Can be both at a domestic and/or international level
3) Different taxpayers
- Can be companies, individuals, ecc.
4) Same income
- Focus on the income
Temporal requirement -> do the taxes have to be imposed in the same year? NO. indeed, state can
levy the tax at different moments in time so it is immaterial when they actually do so for economic
double taxation to arise.
Classical system of taxation
o Taxing corporate profits first and then taxing the profits distributed to shareholders
- STEP 1: calculate the tax burden at the company level -> gross income x CIT
- STEP 2: calculate the post-tax profits -> gross income – tax due
- STEP 3: calculate the tax paid by the shareholders -> post-tax profits x PIT
- STEP 4: calculate TTB -> CIT due + PIT due
- STEP 5: calculate ATR -> TTB/gross income x 100
METHODS TO AVOID ECONOMIC DOUBLE TAXATION
UNILATERAL MEASURES:
1) Exemption
A. Corporate level
o Income derived by the company is exempt from taxation at the corporate level but is
subject to tax when it passes through to the shareholder level
- STEP 1: calculate the tax burden at the company level -> EXEMPT
- STEP 2: calculate tax burden at the shareholder level -> gross income x PIT
- STEP 3: calculate post-tax profits -> gross income – tax due
- STEP 4: calculate TTB and ATR
B. Shareholder level
o Income derived by the company is taxed at the corporate level and exempted from tax at
the shareholder’s level.
- STEP 1: calculate the tax burden at the company level -> gross income x CIT
- STEP 2: calculate tax burden at the SH level -> EXEMPT (company profits)
- STEP 3: calculate post-tax profits -> gross income – tax due
- STEP 4: calculate TTB and ATR
2) Full integration of corporate and shareholder income
o Full integration of corporate profits and shareholder income involves attributing corporate
income to shareholders -> Attribution of the corporate income to shareholders, income
Economic double taxation -> “Imposition of comparable taxes by 2 (two) or more taxing jurisdictions on
different taxpayers in respect of the same income”
o Contrary to juridical double taxation (where the focus is on the taxable person – which is taxed
twice), economic double taxation is focused on the economic income (indeed it is intended to
mitigate the fact that the same item of income is taxed in the hands of different taxpayers)
Characteristics of economic double taxation:
1) Comparable taxes
- The taxes must be of comparable nature (similar) -> es VAT v Income tax (not similar)
2) Two or more jurisdictions
- Can be both at a domestic and/or international level
3) Different taxpayers
- Can be companies, individuals, ecc.
4) Same income
- Focus on the income
Temporal requirement -> do the taxes have to be imposed in the same year? NO. indeed, state can
levy the tax at different moments in time so it is immaterial when they actually do so for economic
double taxation to arise.
Classical system of taxation
o Taxing corporate profits first and then taxing the profits distributed to shareholders
- STEP 1: calculate the tax burden at the company level -> gross income x CIT
- STEP 2: calculate the post-tax profits -> gross income – tax due
- STEP 3: calculate the tax paid by the shareholders -> post-tax profits x PIT
- STEP 4: calculate TTB -> CIT due + PIT due
- STEP 5: calculate ATR -> TTB/gross income x 100
METHODS TO AVOID ECONOMIC DOUBLE TAXATION
UNILATERAL MEASURES:
1) Exemption
A. Corporate level
o Income derived by the company is exempt from taxation at the corporate level but is
subject to tax when it passes through to the shareholder level
- STEP 1: calculate the tax burden at the company level -> EXEMPT
- STEP 2: calculate tax burden at the shareholder level -> gross income x PIT
- STEP 3: calculate post-tax profits -> gross income – tax due
- STEP 4: calculate TTB and ATR
B. Shareholder level
o Income derived by the company is taxed at the corporate level and exempted from tax at
the shareholder’s level.
- STEP 1: calculate the tax burden at the company level -> gross income x CIT
- STEP 2: calculate tax burden at the SH level -> EXEMPT (company profits)
- STEP 3: calculate post-tax profits -> gross income – tax due
- STEP 4: calculate TTB and ATR
2) Full integration of corporate and shareholder income
o Full integration of corporate profits and shareholder income involves attributing corporate
income to shareholders -> Attribution of the corporate income to shareholders, income
