Question

Taxes, both foreign and domestic, can easily become a source of contention. No one likes sharing their hard-earned profits! When organizations operate in more than one area of the world, they are often faced with even more complex tax decisions and often deal with double taxation issues.

What are some of the key aspects of foreign taxation and double taxation? Based on what you learned in Chapter 11 and in your research on double taxation in foreign operations, what are some of the key ethical issues that arise in this area?

Answer 1

Foreign taxation refers to the taxation of income in another country other than the country of origin. The key aspects in this regard are as follows:

- The headquarters of the company remains in the country of origin and an office is established in another country for expansion or other purposes.

- The tax rate which applies is the tax rate of the country in which the office is establisshed.

- The income can be taxed in the country of origin and the country in which the office is located if no double taxation agreement is present.

The key ethical issues in this area are as follows:

- The establishment of an office in another country should be for expansion or to make use of cheap resources.

- Many organizations establish offices in other countries as the tax rate is lower than the country of origin. However, it is unethical to avoid tax in this manner.

- A lot of complexities also arise so as to where the income has actually accrued. This can also be misutilized by companies to evade taxes.