Double Taxation

Double Taxation

One of the main issues discussed in the United States has been the taxation of corporate profits. A corporation is taxed on income that is earned and distributed to their shareholders. Once the corporate is taxed, the shareholder is taxed for the second time. This process is known as double taxation which is define as the “the imposition of two or more taxes on the same income, asset , or financial transaction” (Double Taxation, 2008).

However, if one were to expand the topic you will come to see that, double taxation does not only take place in the United States but also internationally. This does not only occur between corporation and shareholders when it comes to dividend distributions. It can also be a double taxation between two countries. One main scenario is when a cross-border investment is taxed twice by the country of investment and by the country of the source of investment. To illustrate a brief description, consider corporation A, which its headquarters are in the United States and has a manufacturing plant in France. The Unite States may tax the profits earned in France and so may France. Other complications may arise if some of the shareholders of company A live in France and are subject to income tax there on dividends received from A. While international double taxation is also a much discussed issue, this paper will only be focusing on the double taxation in the United States, which is a country of various investors who want to invest in various companies but who at the same time just like corporations; don’t want to be taxed on income earned.

Unlike a partnership, limited liability partnership, S corporation and sole proprietorship, a corporation is the only one that has a double taxation. A corporate form is the most successful type of business form, “the success of the corporate form of business lies in the separation of the corporation from its ownership” (Amadi). This means that the company itself and the...