How International Transactions Affect Taxation
Taxation is the imposition of charges on the citizens or particular business entities’ income by the government. These taxes are majorly meant for the government to fund its activities but they can also be used in order to encourage or discourage some business activities. The business activities affected by the level of taxation can be both local and foreign businesses. However, it is also important to note that the international business activities also affect the rates of taxation by different countries.
This write up will therefore discuss the effects of the international transactions on taxation
According to Schaffer, Agusti & Earle, (2009), international businesses are businesses which are operated across the borders of different countries. They can either be inform of Foreign Direct Investments or trade on imports and exports. He further observes that these business transactions affect the taxation behavior on the persons and the countries involved.
Marquez emphasizes that because the international business transaction affects taxation, every businessman should ensure that he understands how their business activities affect his tax liabilities. This is true since each country has got its own ways of treating the foreign investments which in effect determines the tax liabilities of the foreign investors. For instance, every citizen or U.S. resident is taxed on their income from whichever source worldwide. While the non residents are only charged on income that is either generated from U.S or from U.S related business operations which could be outside U.S (Schaffer, Agusti & Earle, 2009).
In the Marquez article, it is also observed that the general taxpayers rule states that the sources of dividend income, which are subject to taxation, are determined by the location of the business which can be a foreign direct investment. For instance, the source of rental tax is from where the rental property is located. This is also true since the amount of tax payable by a multinational business organization has to be computed in accordance to the location of the business premises (Schaffer, Agusti & Earle, 2009).
Marquez article further indicates that the U.S has tax treaties whereby they tax the involved foreign investors at a reduced rate as compared to what they tax the U.S residents. However, each country of the involved investors must have been into the treaty in order to benefit from the reduced rates of tax. On the other hand, the U.S citizens also benefit equitably from their investments in the various countries where their government has signed their treaties. This is true since the international business transaction has led to the corporate treaties between different countries which include tax exemptions (Schaffer, Agusti & Earle, 2009).
In conclusion, for a business entity to succeed in the international market, the business owners and investors must first understand the impact of their activities on taxation rates and learn on how to deal with the tax burden.