Exemption method
In addition to the credit method, the exemption method is one of the two main tax constructions for avoiding double taxation . The methods are used both as a unilateral regulation in national tax law and in double taxation agreements .
In order to avoid double taxing a citizen who is taxed by two states , double taxation agreements often regulate the exemption of the income concerned in one of the two states.
content
The exemption method avoids double taxation by exempting income or assets from abroad in the country of residence from taxation. The exemption method can be designed on the one hand as an unconditional or conditional exemption and on the other hand as an exemption with or without progression reservation. The unconditional exemption is granted by the country of residence, regardless of whether the source country actually taxes the income or the assets. On the other hand, the conditional exemption is only granted by the state of residence if the source state actually taxes the income or assets. In the case of progression proviso, the income or assets from the source country in the country of residence are used to calculate the applicable tax rate.
Model agreement
The Model Convention of the OECD (OECD-MA) serves many states as a basis for the completion of their double taxation agreement . In the OECD-MA the exemption method (exemption method ) with progression reservation is defined in Art. 23 A OECD-MA. Together with the credit method in Art. 23 B OECD-MA, they together form the method articles . They supplement those distribution norms that do not regulate their legal consequences. Distribution norms are the norms of a double taxation agreement, which state which of the contracting states has the right to tax. The distribution norms can be complete or exclusive and assign the right to tax “only” to one of the contracting states. If, instead, it is an incomplete or non-exclusive distribution standard that only stipulates that one of the contracting states or, if applicable, both of them may tax a certain income or certain assets, the method articles are required to avoid double taxation. The exemption can also be conditional or unconditional. If it is conditional, the foreign income or assets are only exempted if they are actually taxed abroad. On the other hand, with an unconditional exemption, the foreign income or assets are exempted independently of the foreign tax. Therefore, some articles of double taxation agreements contain subject-to-tax clauses , which make the exemption dependent on proof of taxation in the other country and thus lead to a conditional exemption.
criticism
The exemption method means that the foreign tax rate is applied to income and assets from abroad. This enables you to benefit from low taxes in certain countries through tax planning. This is not possible with the credit method because the foreign tax is credited there, but the country of residence takes the entire income or the entire assets as a basis.
In addition, double non-taxation can occur if the source country does not use its taxation rights and the exemption is made by the country of residence. This can be prevented by a subject-to-tax clause by making the exemption dependent on proof of taxation in the other country and thus leading to a conditional exemption.
Individual evidence
- ↑ Madeleine Simonek, in: Zweifel / Beusch / Matteotti (ed.), Commentary on international tax law, Art. 23 A, B OECD-MA N 4
- ↑ Madeleine Simonek, in: Zweifel / Beusch / Matteotti (ed.), Commentary on international tax law, Art. 23 A, B OECD-MA N 1
- ↑ a b Madeleine Simonek, in: Zweifel / Beusch / Matteotti (ed.), Commentary on international tax law, Art. 23 A, B OECD-MA N 62
