Question

[Taxation]Historically, taxpayers have implemented strategies to mitigate or eliminate the effects of double taxation. Why might taxpayers think twice before implementing such strategies today? Explain.

（The nondeductibility of the distribution by the corporation, coupled with the taxation of the distribution to the shareholder, creates double taxation of the corporation’s income, first at the corporate level and then at the shareholder level. The double taxation of distributed corporate income has been a principle of the U.S. income tax.）

Answer 1

Double taxation is the income tax paid by the assese twice on the same income. It happens when income is taxed at both corporate and personal level. It can also occur in interanational trade or investment when the same income is taxed in two different countries. Double taxation is a negative element of taxation system as it proves to be a burden on the taxpayers.

To deal with this double taxation system a double taxation avoidance agreement is made between countries so that tax cannot be charged on the same income of non- residents. It is a tax treaty signed between india and other countries so that avoidance of double taxation is posiible.

corporates are considered as a seperate entity from its shareholders. so the shareholders have to pay tax twice first on their income at personal level and secondly when comapny distributes dividends then also they have to pay tax.