Taxation of International transactions

Taxation of International transactions

Introduction

Taxation refers to money collection from involuntary levies. It is a government function which is compulsory. It applies to individual incomes, capital gains and estate taxes. Taxation happens both domestically and internationally. In international taxation, tax levies are deducted in accordance with tax laws of different nations. The taxing procedure varies from one government to another. This makes it difficult to determine a general procedure that can be used to levy international taxes. Instead, the taxes are levied with respect to the measures of income generated from economic activities.  For example, the net income presented by accounting transactions such as profits from gross incomes and gross margins (Charles and Robert 2011).

Tax laws, impose income levies more on business enterprise than on individual earnings. The jurisdiction suggests that all business entities be taxed in a uniform manner for all types of income earned while individual levies are taxed with respect to the sources of income and the amount earned as well. Many tax laws pertaining enterprise taxation emphasis on double taxation where an enterprise is taxed at a business level and also at the owner level. The jurisdiction imposed on this, are always with respect to company laws that help determine whether an entity is to be taxed on both business level an owners level. However, there are exclusions laid by the United States where taxation can be done out of legal forms compliance.

In order to reduce the complexity associated with administration, many of the governments have imposed specified income authorities that try to unify taxation international. However, disputes arise on how taxes should be levied international but research by (Nejed, 2014) indicates that jurisdiction is the best way to base on tax legal terms and compliances. Internationally, there exist other tax concepts that have distinct methods of tax imposition. For example, some countries have distinct methods of tax collection based on the field of taxation.

Tax treaties

A tax treaty is an agreement made on taxation between two countries involving resolution of double taxation issues. The agreement pertains both active and passive incomes. Active income is money generated by service offering it includes salaries, wages, tips commissions and business incomes which include the physical participation of materials. On the other hand, Passive income refers to income generated from individual properties which don’t involve material participation.  For example, rental properties, partnerships, and private corporations among many. These tax levies involve not only bilateral treaties but also multilateral treaties agreements (Charles and Robert 2011). The man aim of the agreements made on tax treaties is to reduce double tax impositions of the same income for a foreign resident. The treaties provided in this document have distinct functions based on the field it is mandated to tax. For example, some treaties determine tax coverage for both active and passive tax generating fields, including the beneficiary of tax imposed (Nejed, 2014). Secondly, there are treaty provisions that stipulate on the reduction of taxable amounts withheld from levies imposed on dividends and interests paid by residents of one domicile to residents of another related domicile.

Sources of income and deductions

The taxable incomes result from potential sources that are steadily generating incomes. These sources can include both individual salaries, pensions, wages and income generated by business entities as well. This section includes determination of this income sources and deductions for the United States, foreign source income for other countries, allocation and appointment of deductions and transfers pricing. To start with, the United States of America has a number of source s that hand in the generation of income. Retirement income is one of the most valuable sources of income. Statistics show that over 100 000 dollars are taxed for every individual with retirement benefits.

Foreign currency transactions

Foreign currency transactions are monetary functions of currency exchange which involves variations of exchange rates and analysis of implications associated with this variations. For example, gain or loss pertaining variation of exchange rates as a result of dates deviation during which transactions were made, are always governed by views related to currency domination caused by this variation (Charles and Robert 2011). It is a wider field of currency transaction that involve tax issues, functional currencies, branch operations, distributions from foreign corporations among many others. To start with, tax issues in foreign currency transactions include tax consequences related to foreign currency transactions, for example, the variation of currency with time, results in either loss or gain.

Foreign exchange transactions also involve distributions from foreign corporations. This includes determination of taxable income for corporation’s adherent to the rules. For example, in United States of America, income from the foreign corporation is not taxable unless the corporation issues a pension or a dividend to the shareholders. Furthermore, the distribution of taxes from foreign corporations is always based on the jurisdiction that registers the company to exist as a business entity (Charles and Robert 2011).

United States persons with offshore (foreign) income

In the United States, there are people with offshore companies or corporations. This is entities established under the law of a foreign country as opposed to domestic jurisdiction incorporation. In most cases, the establishment of offshore enterprises is mainly to evade tax or operate under minimal law compliances (Nejed, 2014). Within this context, there are other transactions that happen in between the offshore stipulations. For example, it involves a clear understanding of tax heavens, export properties, crosses border asset transfer foreign corporations under United States control, and foreign tax collection. Cross-border asset transfer is also an exporting procedure that involves the formation of businesses that agree on terms of asset management as well as identify potential markets for their products (Charles and Robert, 2011). Through asset transfer, they are able to meet their needs as well as contribute to economic growth through taxation. The assets are transferred on credit which must be agreed upon by the borrower under repaying principles.

U.S taxation of nonresident aliens and foreign corporations

Nonresident aliens are the classification of people who fail in green card test and therefore excluded from United States citizenship. Foreign corporations are existing business entities in the United States which are established under the jurisdiction or registered in a state of contrary originality.  It is mandatory for a nonresident alien to pay tax for income earned on businesses run in the United States or services rendered within the country. Furthermore, research indicates that a nonresident alien must file tax returns for businesses or engagements in trade within a taxable year. Foreign income earned out of trading stipulations of unites states is subject to tax withholding not exceeding thirty percent. For example, income earned on rents, dividends, and royalties (Nejed, 2011). However, a nonresident alien has tax exemptions including, debt interests irrespective of the source, interest earned from deposits and banking free from U.S trade among many others.

Tax planning

Tax planning refers to an analysis made on financial situations reflected from a tax perspective. The main aim of tax planning is to enhance efficiency in both international and domestic tax transactions. Other elements of financial plans such as exchange rates and accounting aid in tax planning to enhance deliverance of an efficient tax system. Nonetheless, tax planning aids in reducing accumulation of tax liabilities as well as facilitate eligibility pertaining retirement plans as well as global achievement. The tax planning process is incorporated into other subjects such as foreign tax credit limitations and sourcing provisions. The foreign tax credit limitation refers to the least amount of foreign tax paid from a person’s gross salary (Nejed, 2014).

References

Nejed, J. C. (2014). International taxation: principles and practices. . LexisNexis Canada., 56-78.

Charles Gustafson, Robert Peroni. (2011). Taxation of international transactions. West academic publisher chapter 25

Roemer, J. (2003). The Democratic Political Economy Of Progressive Income Taxation (No. 9711).