The concept of international double taxation issues
Double taxation can take different forms and occur in different situations. Sometimes double taxation is being distinguished based on the number of taxpayers involved. Cases, where the same income is being taxed twice in the hands of the same taxpayer, are being referred to as juridical double taxation.
For example, the dividend is being taxed in the country of source by a way of withholding tax and then one more time in the country of residence of the shareholder by a way of tax assessment. Cases, where the same income is being taxed twice in the hands of two different taxpayers, are being referred to as economic double taxation.
Continuing with the previous example, the profit earned by the company, which paid the dividend may be subject to corporate income tax. Economically, the corporate profits and the dividends are the same income, however, taxed in the hands of two different taxpayers – the company paying the corporate income tax and the shareholder – subject to the taxation on the distributed profits. Double taxation may happen both in domestic and cross-border situations. The tax treaties prevailing seek to eliminate the cross border/international juridical double taxation.
However in some instances, the tax treaties may also eliminate or reduce the international economic double taxation – e.g. by providing a reduced withholding tax rate on inter-company cross-border dividends (see Article 10, paragraph 2, letter a) or by providing the obligatory corresponding adjustment in case of transfer pricing situations (see Article 9).