A new doctoral thesis from the School of Business, Economics and Law at the University of Gothenburg, Sweden, explores the issue of double taxation in connection with international transactions. The study sheds light on the vastly different results that the established methods to eliminate double taxation may yield in certain situations: that a transaction is still subject to double taxation or that no tax is paid at all.
'International transactions often imply that taxes have to be paid in more than one country since the tax systems in involved countries are not coordinated well enough. For example, a Swedish company that receives interest, dividends or royalties from another country may be taxed in both Sweden and the source country. International double taxation may occur in a great number of situations,' says lawyer and researcher David Kleist at the Department of Law, School of Business, Economics and Law, in Gothenburg.
Since 2007, David Kleist has been working on his thesis on how international double taxation can be prevented. Since double taxation is considered to reduce international trade and investments, many countries have established so-called double taxation treaties, where the signees agree to limit their right to tax a transaction.'
The treaties are based on various methods to prevent double taxation, methods that are analysed in the thesis together with a number of application issues. The study also analyses the economic outcome in certain situations of the two main methods recommended by the OECD.
The way in which the methods are applied can affect the end result significantly, according to Kleist:
'Problems with the application of the treaties can lead to that the double taxation dilemma remains, or that a transaction is not taxable in either country. The result of study points to the complexity in this area and the need for well-balanced rules,' says Kleist, who is hoping that the study will benefit not only practitioners and academics but also legislators.
The thesis was publically defended on 27 April 2012.