Double taxation


Double taxation is the phenomenon by which the same taxable event is subject to two or more similar taxes. The term is usually used when the same income is subject to two or more taxes.

Double taxation, therefore, is the phenomenon that occurs when an income, an income, is subject to two or more taxes levied on the same taxable event. That is, when for the same income we must pay two or more taxes that have the same purpose. In this sense, it is usually used to refer to when this fact occurs on the same income.

The fact that this occurs may be as a consequence of a collision of two different tax systems. Therefore, for the same benefit, two countries apply two similar taxes on that same benefit. In this sense, it would be called international double taxation, since there is a tax applied by the State to the income generated in its territory.

At the same time, on the other hand, the right of a country to apply an income tax to its citizens for the fact of possessing the nationality of the country. This, even without having generated the income in their country of origin.

This fact is possible due to the fiscal sovereignty of the countries. Therefore, they act with total independence, applying taxes to whoever, from the Government, they consider.

Why does double taxation occur?

As we were saying, double taxation is produced by the fact that countries enjoy fiscal sovereignty that allows them to make decisions when applying their taxes on the income of citizens living in the country. Also those that produce or generate an income in it.

In the first place, when the country, with its fiscal sovereignty, applies a tax to a citizen on his income, as well as the obligation generated by the taxpayer, for being a resident citizen in the country; with nationality.

While, on the other hand, the fiscal sovereignty of the countries to apply taxes to all those incomes that are produced as a result of doing operations in the country. In this sense, even though it is not a citizen of the same, the State has the power to tax the income produced in State territory.

Thus, this collision between the two systems allows situations of this type to occur, since globalization and operations, both intra and extra community, generate a continuous flow of capital between countries that are subject to different taxes.

Second, it could also occur when the same income is taxed for two different subjects. That is, when the same capital is taxed with two or more similar taxes for the simple fact of affecting two or more subjects.

Types of double taxation

There are several types of double taxation. For this reason, we must be very cautious, as both types are collected, but they do not mean the same thing. These vary depending on the subjects that are affected by it.

We can classify the types of double taxation in two:

  • Double legal taxation: A double taxation that occurs when two or more taxes are applied to the same subject that are levied on the same taxable event. In turn, in two or more countries. As we indicated previously, produced by that collision between two or more tax systems, which exercise their rights, generating an obligation for the citizen.

The best example to understand double legal taxation is the one that occurs when a citizen who operates with two countries must pay the same tax for the same income. Produced the tax by that fiscal sovereignty to which we alluded.

  • Double economic taxation: Like the legal one, a double taxation for the same income, but that is imputed to two or more subjects. That is, the same income is taxed, but it is charged to two or more people.

The best example to understand it is that of the inheritance of assets. When a country taxes the inheritance of a relative's assets, a double economic taxation is taking place, since they have to pay a series of taxes that, previously, were already paid by the owner who transfers said assets.

Systems to avoid double taxation

Within the agreements that the countries maintain, there are several systems that allow us to avoid the payment of this double taxation that would entail the same taxable event in different countries with fiscal sovereignty.

Since it is a double taxation, there are methods and ways that allow avoiding this double payment, promoting agreements and conventions that, in a globalized world, avoid situations such as those that occur.

Thus, the different ways and agreements that allow avoiding double taxation, the following methods should be highlighted:

  • Exemption method.
  • Deduction method.
  • Attribution method or tax credit.
  • Method of division of the product and distribution of the taxable object.

Depending on the country to which we refer, there will be a series of agreements or others. The economic integration that the planet has experienced over the years has established many agreements that establish the different economic blocs, which allow the payment of a single tax, despite dealing with several countries. Thus avoiding, incidentally, having to face this double taxation.

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