Double taxation or multiple taxation refers to the situation in which a taxable object is subject to the same taxation for the same taxable person within an identical period of time under one tax regime ( double taxation at national level ) or under more than one tax regime ( double taxation at international level ). In most cases, double taxation arises from the fact that tax regimes within the framework of the principle of sovereignty fall back on the principle of universality and the principle of location (see examples below). Double taxation means a considerable restriction of the general freedom of movement - in particular the free movement of capital and the freedom of establishment - and should therefore ideally be avoided.
In contrast to this, there is the double burden , in which a situation is subject to several different types of taxation. In Swiss economics, the double burden is sometimes referred to as double taxation.
National and international double taxation
National double taxation can arise in federal states in which the states and municipalities levy taxes that are similar to existing federal taxes. However, questions of double taxation are particularly relevant at the international level. They arise regularly, especially in the area of income tax and corporation tax, due to an overlap of national tax claims when the tax laws of two countries are linked to both the place of residence (unlimited tax liability) and the place of origin of an income or the location of an asset (limited tax liability).
Concept of double taxation
Legal double taxation
Legal double taxation (also: legal double taxation) describes the situation in which the same tax object is subject to a similar tax for the same legal taxable entity within an identical period of time under one tax regime or under more than one tax regime.
- Example: A natural person (taxable person) with domicile and habitual residence in the territory of tax regime A owns a house in the territory of tax regime B, which regularly generates income from rental (taxable property). In regime B, the natural person has limited tax liability due to the apartment building located there (regime B invokes the principle of sovereignty and specifies it in the form of the principle of location). Regime B will tax the income of the natural person (income from rental) on its territory. In tax regime A, however, the natural person is at the same time subject to unlimited taxation due to the characteristics of residence and habitual residence (regime A also relies on the principle of sovereignty, but specifies it in the form of the principle of universality). Tax regime A will therefore tax the entire income of the natural person - the so-called world income - including the part that was already taxed as income from rental in tax regime B.
Economic double taxation
Economic double taxation describes the situation in which the same taxable object is subject to the same taxable entity within an identical period of time under one tax regime or under more than one tax regime. In the case of economic double taxation, the legal subject identity (equality of legal entities) is extended to the economic subject identity.
- Example: A corporation with a registered office and management in the area of tax regime A establishes a subsidiary with a registered office and management in the area of tax regime B. The subsidiary is subject to unlimited taxation in regime B due to the characteristics of the domicile and management, so it must first generate profits tax there. The parent company is subject to unlimited taxation in regime A due to the characteristics of its registered office and management, so it has to tax its own profits in regime A. If the subsidiary in regime B distributes its after-tax profits to the parent company in regime A, the subsidiary's profits already taxed in regime B are again part of a taxable income (namely the parent's taxable income in tax regime A).
Measures to reduce double taxation
If double taxation results, measures are usually taken to reduce it.
- Unilateral measures: Double taxation is avoided or reduced by a tax regime unilaterally foregoing tax claims.
- Bilateral measures: double taxation is avoided or reduced by two tax regimes negotiating and concluding agreements . To this end, numerous countries around the world adopt so-called double taxation agreements based on the OECD model convention . The most recently within the European Union in accordance with Art. 293 2.Spiegelstrich TEC (in the version of the Treaty of Nice) existing obligations of the Member States among themselves to start negotiations in the case of double taxation to the benefit of their nationals to ensure the elimination of double taxation, was off with effect repealed without replacement on December 1, 2009 by the Treaty of Lisbon.
- Multilateral measures: An example of multinational measures to reduce double taxation is, for example, the agreement between the Nordic countries Denmark , Finland , Iceland , Norway and Sweden from 1983 (revised in 1996) or the UNESCO agreement to avoid double taxation on literary copyright from 1979. For the taxation of the income of NATO soldiers and their relatives there are detailed regulations in the NATO troop statute.
There is, however, no obligation under international law or (in relation to the member states of the European Union among one another) under European law to eliminate double taxation.
Methods of reducing double taxation
Several methods can be used within the framework of the unilateral, bilateral and multilateral measures described. However, this does not always completely avoid double taxation. Instead, it is very often only reduced to a certain level.
Situation in Switzerland
In Switzerland, according to Art. 127 para. 3 of the Federal Constitution prohibits double taxation between cantons.
- Double taxation Federal Agency for Civic Education 2007.
- Heinz Kußmaul (2007): Betriebswirtschaftliche Steuerlehre, p. 637.
- information, see Verlag CH Beck, 2nd edition 2008 and 3rd edition 2010
- Multilateral Convention for the Avoidance of Double Taxation of Copyright Royalties, with model bilateral agreement and additional Protocol
- cf. BFH, judgment of June 19, 2013 - II R 10/12, BStBl 2013, II 746, margin no. 21 f. with reference to the case law of the ECJ