Source-Source double tax??

can anyone help giving an example on source-source double taxation (part of the estate planning topic)

Coca Cola has operations in many countries but is headquarted in USA. So one of the countries claim taxes on its income earned in that country and USA claims taxes too since it is being run from there. Coke earns 100 in one of country, it gets taxed at 15%. So now it has 85 to send back to US, gets taxed at 15% again for the 85$.

sweet and simple. thank u

Resurrecting this old thread because i am confused. How would a source/source tax dispute arise? it seems the above example would be more of a source/residence issue. In other words it should be relatively simple to determine income produced in a source country, how could 2 source countries claim the same source income?

Today is such conflict even more relevant with internet trading and especially with sales tax (VAT claims).

Within CIT area, consider cases with intercompany transactions among entities in various countries under the same mother company. Transfer pricing issues whereas each source country may claim for taxation. Or the goods have just been sent for processing to entity in another country and there its added value was not taxed as a chance.

within VAT context it makes sense, but in reality the value added would be taxed at the source country so i still fail to see the distinction

Not necessary. Tax base and tax due is often difficult to determine and evasion is common case especially within international holding type companies. Individuals, on the other hands use tax heavens and hidden bank accounts.

A source/source conflict arises when the internal tax law of two countries deems certain income as domestically sourced - i.e. country A says “according to our domestic law this is Country-A sourced income” and country B says “according to our domestic law this is Country-B sourced income”.

This usually happens when the sourcing rules differ - e.g. a corporation in Country A pays a dividend to a resident of Country B. Country A says that dividend income is sourced based on the residency of the paying entity while Country B says the same income is sourced based on the recipient’s residency. In effect - both countries claim this is domestic-sourced income.

Most tax treaties do not deal with source/source conflicts as countries will not allow another country to tax income which they deem to be domestic; however, a few have special sourcing rules that (usually) override the domestic laws of the treaty parties.

The reason a source/source conflict is bad is because neither country will give any foreign tax credit for said income, as both countries consider it domestic-sourced, so if income is 100 and Country A has a 35% tax and Country B has 30% tax, the effective tax rate will be 65% - neither country will allow credit for the tax paid in the other country.

Hope this helps,

Magnus