Part 1 - AL-Tax

International Taxation Handbook●●●●●shareholder, the 65 euros will be taxed at the shareholder tax rate. Therefore,the total tax liability on company income before tax is T τY.Full integration system. In contrast with the previous system, full integrationrefers to the case where net income of the company (distributed or not)is included in the assessable income of the shareholders, implying thateventually no tax is paid at the company level.Dividend exemption system. As in the latter case, the corporate tax is integrated.But rather than integrating taxes at the shareholder level, dividendspaid to shareholders are exempted from tax at the personal level.Dividend deduction system. Between the full integration and the dividendexemption systems, we have systems that attempt to reduce the tax rate ondividends. Under the dividend deduction system the company is consideredas a taxpayer, but it is allowed to deduct x% of gross dividends distributedfrom the company’s taxable income. Shareholders pay ordinarytaxes on the dividends they receive.Split-rate or two-rate system. This is another method to reduce the tax rateon dividends by applying a lower rate on distributed profits than on undistributedprofits.Dividend imputation system. The basic idea is that companies are taxed intheir own right, and when they distribute income via dividends, a fractionof the tax paid by the company is imputed on the tax liability of the shareholder.In other words the tax liability for a shareholder is the differencebetween his personal income tax on dividends received and the creditbased on the rate of imputation.Appendix BTo avoid taxation of the same income in two different jurisdictions, the countrieshave adopted different methods of double taxation relief:●●Exemption system. Under this system, the income of the affiliate is taxed inone state and exempted in the other. Generally, the exemption system tendsto assure the capital import neutrality, i.e. multinational companies of onecountry will bear an effective tax burden in foreign markets equal to multinationalcompanies of other countries.Credit system. Taxes paid in the host country are used as a credit againstthe tax liability in the home country. If the company is consolidated in its40