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The government of every nation has certain responsibilities that it must meet to ensure that all the activities being conducted in the country are running smoothly. The various responsibilities of the government include the provision of public goods such as security, roads, health care, and education (Schanz & Schanz, 2010). The government does this because there are those people in the society who cannot be able to provide themselves with such services adequately.
The government, therefore, needs funds to enable it to provide such services. Since the government does not run any profitable organizations, it ensures that its citizens and corporations are the ones who finance its operations. Members of the public and corporations, therefore, have to part with some of their revenue and hand it over to the government for it to provide public services adequately. Therefore, the collection of revenue from the public and corporations by the government is what is referred to as taxation (Cossa, 2008).
The different categories of tax include sales tax, income tax, excise duty, wealth tax, and capital value tax. All these types of tax provide the government with funds that enable it to provide public goods and services to the public without relying on loans or grants (Cossa, 2008). However, the concept of double taxation has been the subject of discussion in different countries across the world. It is an issue that has received attention from both the members of the public and corporations. Many people feel that they are normally made to pay taxes to the government more than once thereby making the process unfair to some taxpayers. This state of affairs, therefore, introduces the concept of double taxation (Great Britain, 2011).
Most governments treat companies and their owners as distinct legal units. Because of this, governments require that companies should pay taxes on their earnings. Individual workers are also required to pay taxes from the income that they receive from the organizations that they work for (Panayi, 2010). In addition, when companies pay dividends to their shareholders, the dividends also carry tax liabilities for those shareholders who receive them. This is even though the earnings that were used to pay the dividends were already taxed (Great Britain, 2011).
Various debates, therefore, exist because of taxation that is carried out on the dividends that are paid to shareholders. There are those people who argue that taxation on dividends is an unfair practice since taxation had already been carried out at the corporate level. There is also a different group that argues that this form of taxation is fair. The people who support the concept of double taxation argue that failing to tax the dividends would mean that the wealthy people would be living a very lavish lifestyle since they would receive huge benefits from the large amounts of stock that they own this would therefore bring inequality in the society (Campbell, 2009).
On the other hand, those people who support double taxation say that companies are the ones that pay dividends to their shareholders voluntarily. Therefore, companies are the ones that choose whether their income should be double-taxed or not. When they choose to make dividends to their shareholders, they advocate for double-taxation (Great Britain, 2011). Various governments have therefore been forced to confront their citizens and reason with them on the relevance of double taxation.
There are instances whereby double taxation results from international activities. For example, a person may start up a business in one country while he is residing in a different country. Various people in the United Kingdom have established business enterprises in different parts of the world while they continue living in the UK. In this perspective, such people are normally required to pay taxes in their own country of residence as well as in the country where their business enterprise is located (Dana, 2009).
However, double taxation means that people in a given country are forced to part with a large portion of the revenue that they earn. There are those countries that understand that and they, therefore, allow people to pay taxes to their home country only thereby enabling them to enjoy exemption. However, this is only limited to very few countries because almost every country hopes to maximize its wealth to improve the welfare of its citizens (Lang, Pistone, & Schuch, 2010).
A different incidence of international double taxation is observed when a person is required to pay taxes to the country whereby he realizes profits. This enables a person to avoid a tax credit in his home country thereby eliminating the concept of double taxation (Rasmussen, 2011). However, this does not imply that a person should refrain from paying taxes. For example, different taxing authorities in the United Kingdom normally conduct communications with other taxing authorities in other parts of the world to confirm that taxpayers pay their tax dues (Borrego, 2009). This form of follow-up is carried out to ensure that taxpayers do not use the international tax-paying laws to avoid paying taxes.
The UK has recently shown significant efforts in trying to handle the various tax problems that many businesses and individuals operating within the European market face. One of the strategies that the UK has applied is to analyze the various conflicts that exist between the treaty that the European Commission has set regarding cross-border trade and double taxation. These treaties are set in such a manner that they facilitate the UK to carry out trade smoothly with other countries.
The European Commission is also looking at the various ways in which it can resolve the problems that are associated with company taxation. The various questions that are held in mind include discussing the issue of equal treatment of companies that are owned by EU residents. On the other hand, the issues that are being addressed in the UK involve ensuring that there is the coordination of all activities that can be taxed (Lang, Pistone, & Schuch, 2010). The double taxation system has also led to economic and political repercussions and the government hopes that by addressing this issue, it will be able to gather support from the neighboring states thereby enabling them to set up companies without fear of extreme double taxation cases.
Conflict over double taxation
The international business has grown significantly over the past few years. This state of affairs has made many states including the United Kingdom understand how taxes should be paid. The various pressing questions that are being raised by experts include whether companies should be made to pay taxes in the countries where they are operating or whether they should pay taxes to their mother countries.
This issue has made states think critically about whether there is the possibility of coming up with a model that can facilitate tax sharing (Bellan, 2010). This problem of double taxation has made many companies be in a state of uncertainty. When companies pay taxes to two countries, the results are always disastrous. However, many states do not like the idea of other states drawing taxes from the countries where the businesses are generating profits (Books LLC, 2010). The issue of double taxation on the international front is therefore a common happening because each country wants to claim its share.
Double taxation influence the sovereignty of a state
Countries across the world have come up with a range of multilateral agreements that cover the business activities that they carry out together. However, countries have never been able to come up with a policy that can enable them to unify their tax regimes (Viitala, 2011). This is because the ability of a country to tax depends on its sovereignty. Therefore, people need to understand that there are those areas of international activities that countries would be willing to part with. This is true if the business activities are believed to bring benefits in the long run (Books LLC, 2010). However, taxation has not been an issue that has made countries benefit in the long run. It instead acts as a form of deprivation of a states resources. It is, therefore, true that a state taxes individuals and companies to it to achieve gains.
Double taxation and global business practices
The UK is among the nations that agree with the idea of ensuring that policies aimed at taxing global organizations are made global. However, the pressing issue is whether the problem of double taxation can be solved effectively. This is because, even after the successful globalization of business activities, states still maintain their policies on taxation (Kobetsky, 2011).
Double Taxation Problem
Double taxation has been said to play a very significant role in terms of deterring cross-border trade in the United Kingdom. This state of affairs has also significantly influenced the performance of the international market. The UK has therefore embarked on a platform aimed at assessing the financial impact that double taxation brings to the companies and citizens within the region. The issue of double taxation has mostly been observed to affect the people who cross the border to work in a different country and those people who receive inheritances from other countries (Steuerle, 2008).
These people are mostly taxed in their home country as well as in the other countries where they generate income. This scenario has also been observed in those companies that conduct their activities in other countries outside the United Kingdom. The problem of double taxation is observed when the different states impose a tax on the same person or when two people are taxed in the different states over the same commodity.
The government is the key provider of public goods and services. However, the private sector also plays its part because there are those goods and services that are better provided in the hands of the private sector. However, there are certain goods and services that a country is required to import from other countries especially the ones that it cannot manage to produce (Rasmussen, 2011). Many countries including the United Kingdom practice cross-border trade. The exporting country imposes a tax on the goods that it exports and the importing country also charges excise duty on all the goods coming into the country.
This state of affairs makes the provision of imported goods an expensive exercise particularly if the goods are provided to the country by the private sector (Wittendorff, 2010). Double taxation is therefore observed to make the provision of services and capital a rather expensive exercise to the members of the public.
The free movement of people to and from other member states bordering the United Kingdom is also restricted by the double taxation system. This is because those people who work outside the United Kingdom are taxed in both countries thereby significantly reducing their earnings. As a result, people find it cumbersome to work in another country and they, therefore, prefer to remain in their own country and earn a living there (Kobetsky, 2011).
There are various measures that the United Kingdom has set in place to facilitate reducing the losses that are associated with double taxation. One of the mechanisms that the region has adopted is relieving residents and corporations from the national income tax. The region has also devised double taxation conventions aimed at ensuring that the amount of tax that is levied to individuals and corporations is reasonable and does not make corporations count huge losses. However, the exact workings of these mechanisms are not clear and therefore people do not understand how effective they are in terms of eliminating the double taxation problems (Books LLC, 2010).
The conventions that are set in place mostly target income taxes, inheritance taxes, gift taxes, corporate taxes, and capital gains tax (Borrego, 2009). To ensure that the exercise is effective the government of the region invites suggestions from all the members of the public and corporations so that it can be able to draft effective conventions that will relieve the members of the public and corporations part of the tax burden.
From the analysis, therefore, it is true that the concept of double taxation is an issue that most citizens of different states do not appreciate. This is because it leads to a significant drop in their earnings. It is therefore important for governments to reconsider the issue of double taxation both at the internal and international level and devise a policy that would ensure that citizens are not oppressed while making their contributions to the state.
Reference List
Bellan, B D 2010, Individuals Income Under Double Taxation Conventions: A Brazilian Approach, Kluwer Law International, London.
Kobetsky, M 2011, International Taxation of Permanent Establishments: Principles and Policy, Cambridge University Press, Cambridge.
Steuerle, E C 2008, Contemporary U.S. Tax Policy, The Urban Insitute, New York.
Books LLC 2010, Taxation in the United Kingdom: Poll Tax, Hearth, Council Tax, Hm Customs and Excise, Business Rates in England and Wales, Carucage, General Books LLC, New York.
Borrego, F A 2009, Limitation on Benefits Clauses in Double Taxation Conventions, Kluwer Law International, London.
Campbell, D 2009, The UK Tax System: An Introduction, Spiramus Press Ltd, New York.
Cossa, L 2008, Taxation: Its Principles and Methods, BiblioBazaar, Charleston.
Dana, R H 2009, Double Taxation Unjust and Inexpedient, BiblioBazaar, Charleston.
Great Britain 2011, Double Taxation: Taxes on Income, General Books LLC, London.
Lang, M, Pistone, P & Schuch, J 2010, Introduction to European Tax Law: Direct Taxation: Second Edition, Spiramus Press Ltd, London.
Panayi, C 2010, Double Taxation, Tax Treaties, Treaty-Shopping And The European Community, Kluwer Law International, London.
Rasmussen, M 201I, International Double Taxation. Kluwer Law International, London.
Schanz, D & Schanz, S 2010, Business Taxation and Financial Decisions, Springer, New York.
Viitala, T 2011, Taxation of Investment Funds in the European Union, IBFD, London.
Wittendorff, J 2010, Transfer Pricing and the Arms Length Principle in International Tax Law, Kluwer Law International, London.
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