Question

Explain how the doctrine of stare decisis works. Why is it important?

A corporation currently has income solely generated within the United States. However, next year the corporation plans to extend into foreign markets. What tax issues may arise?

Answer 1

Doctrine of stare decisis can be explained as the theory that obligates the courts to take into consideration the rulings of historical cases to give their verdicts in similar cases in the present as well as in the future. In simple terms the doctrine binds the courts to follow the legal decisions given in historical cases to provide verdict in similar cases in the present and in the future.

The past decisions have set precedents and following legal presidents is an integral part in the legal system thus, the doctrine of stare decisis is important.

In case of a company that has its operations spreading beyond the physical borders of the United States of America then the company will be liable to pay taxes as per the tax legislations of such places where it has its operations spreading. Thus, in this case the corporation will have to pay taxes on its foreign income to those countries as per the tax legislations applicable in those countries. In case of double taxation agreement between the United States of America and those countries or any of those countries then the double taxation agreement will help the corporation to reduce its income tax liability on such foreign income.