Question：Company A operates in country A, which operates the exemption method for double taxation relief and which has a domestic corporation tax rate of 30%.
Company B operates in country B, which operates the credit method for double taxation relief and which also has a domestic corporation tax rate of 30%.
Company A and Company B each set up a wholly owned subsidiary in country C, where the corporation tax rate is 25%.
Which of Company A or Company B is likely to face a higher overall corporation tax charge?
A. Not enough information is given.
B. Both the same.
C. Company B.
D. Company A.
The correct answer is: Company B.
Company A would pay tax on profits in country C at 25%, but would then pay tax at 30% in country B and would be exempt from a charge in country A.
Company B would also pay tax on profits in country C at 25%, but would then pay tax at 30% in country B with a credit being given in respect of the tax already paid in country C.
Therefore, company A would face a lower overall tax charge.
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