Business Taxation Essay Example | Topics and Well Written Essays - 500 words

Business Taxation - Essay Example However, before understanding this type of relief, it is needed to understand what exactly double taxation is. Double taxation is defined as a situation in which a company may need to pay two or more taxes for the same asset, financial transaction or its income. Generally the situation of double taxation arises due to the overlapping of tax laws and jurisdiction between different countries when there is a company or individual residing in one country while doing business in another country. The double taxation relief helps in allowing a company or the individual to get the tax reduction from any one of its linked country, may be it is the residing country or the profit gaining country. A group loss relief helps in allowing one company to surrender its current trading losses, excess management charges, and excess income charges to another company in the group. Here, the profits of the recipient company are set against the tax loss so that the surrendering company can get a payment on the basis of the tax saved. Again, it is common practice that a company or an individual residing in one country might want to make a taxable gain in terms or earnings and profits in another country. However, there is possibility that he need to pay tax on that gain locally as an obligation to the domestic, while at the same time, me may again need to pay tax in the country where he has made the gain. To provide companies and individuals relief from such types of bindings, many countries involved in bilateral double taxation agreements among themselves. These agreements are mainly of two types. In the first type, tax is needed to be paid by the individual or the company in its resident country only while exempting tax in the country where the gain arises. In the second case, the country in which the business gains receives the tax from the company, while the company in turn, receives a compensating tax credit in the residing country