15. Relevant Issues that affect Tax

Question 1

What is driving the increasing complications of global taxation?

Answer 1

The digital economy

Question 2

What are the two issues that arise from large companies operating across boarders

Answer 2

• Which jurisdiction should entities pay tax in

- How should taxation in multiple countries be dealt with

Question 3

Where does a country generally pay tax?

Answer 3

In it’s country of residence (country of incorporation, of where the business is managed (e.g. head office))

Question 4

What is the difference between an overseas subsidiary and an overseas branch in terms of…. tax entity?

Answer 4

Separate tax entity vs extension of home operation

Question 5

What is the difference between an overseas subsidiary and an overseas branch in terms of…. tax paid by the parent company?

Answer 5

Only on dividends received vs all profits (in the home country)

Question 6

What is the difference between an overseas subsidiary and an overseas branch in terms of…. loss relief?

Answer 6

None vs reduces home taxable profits

Question 7

What is the difference between an overseas subsidiary and an overseas branch in terms of…. tax depreciation for the parent company?

Answer 7

None under the home regime vs tax deprn provided on overseas assets

Question 8

What is the difference between an overseas subsidiary and an overseas branch in terms of…. transfer of assets?

Answer 8

Incurs chargeable gain and capital taxes vs no treatment

Question 9

What is the OECD?

Answer 9

The organization for economic cooperation and development

Question 10

What is the main point of the OECD model tax treaty?

Answer 10

If an entity has a permanent establishment in a country, it may be taxed on profits earned there (leading to the need for double tax reflief)

Question 11

What are the 3 main methods of double tax reflief?

Answer 11

1. Exemption (in a certain country)
2. Tax credit (DTR given for the lower of overseas tax on overseas income and resident tax on overseas income)
3. Deduction - only the income after tax in the overseas country is taxable in the resident country

Question 12

What is withholding tax?

Answer 12

Payments leaving the country (e.g. dividends) are subject to tax

Question 13

What is underlying tax?

Answer 13

The tax which has already been suffered son the profits from which a dividend is paid, for which DTR may be available

Question 14

What is the calculation for underlying tax?

Answer 14

Tax on profits/profit after tax x gross dividend

Question 15

What is transfer pricing?

Answer 15

The process of setting the price of goods sold by one group company to another

Question 16

What is tax avoidance?

Answer 16

The legitimate use of tax rules to minimize the amount of tax payable by an entity

Question 17

What is tax evasion?

Answer 17

Tax evasion is illegal and involves deceiving the tax authorities as to the true level of tax that should be paid to them