Impact of Taxes

Since cash inflows after taxes are relevant, it is important to know when and  what amount of taxes are payable on foreign  gamins.   hes earnings are subject to tax at more than one ‘stage’ as per the tax laws in vogue in many countries:

First of all, the taxes are  vied on  the subsidiary company by the local government of ‘a country where it is located, as per the tax  Laws applicable to  reign companies”, In general, corporate tax rates of foreign companies are  different from those of domestic companies. Apart  from corporate taxes, subsidiary companies may be required to pay ‘withholding taxes on  dividends remitted to the parent.  these   dividends, being the income of the parent company,

may be further subject to tax in the country where the parent company is   coated. This causes double taxation [in fact, it tantamount to triple taxation in that the affiliate of the parent company is taxed  at  two times already-c-one when it same and another when it remits such gamines in the’ form of dividends; payment of taxes by the   aren’t on dividends received is the ‘third stage at which the same income earned (by the subsidiary) is taxed,

Taxes at many   stages’ appears to be inequitable. Therefore, it  not uncommon for the governments of many contrivances to have special tax treaties  o non administrative the incidence of  . such heavy taxation on foreign subsidiaries foreign earnings. .  Granting tax credit is an  alternative to special tax treaties. Under the tax credit system the tax  law of the country permit the adjustment of taxes already   aid by the subsidiary unit (located in  another country) either fully or partially against the tax liability of the parent; as a result, the incidence of tax is reduced. Tax credit adjustment is illustrated in Example 36.2

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