Taxation of Foreign Income
Taxation of foreign income entails the taxation by one country of income that its residents earn in another country. While most countries exempt active foreign business income from taxation, several large capital exporters subject foreign income to taxation but permit taxpayers to claim credits for taxes paid to foreign governments. There is extensive empirical evidence that the taxation of foreign income influences the magnitude of foreign investment and the tax avoidance activities of investors. Neutral taxation of foreign income entails considerations not only of the volume and location of investment, but also the effects of taxation on capital ownership.
KeywordsCapital export neutrality Capital import neutrality Capital ownership neutrality Double taxation Foreign investment National neutrality Tax credits Tax harmonization Taxable income Taxation of corporate profits Taxation of foreign income
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