Double-taxation agreement

Taxation and payment are based on the financial statements prepared by the company. But the financial statements that a COMPANY prepares for its shareholders are not the same as those that it prepares for the tax inspector and on which its tax bill is assessed. There are certain things that accountants may net out of their calculation of PROFIT - such as transfers to reserves for future rainy days - which the tax inspector will want to add back for the calculation of taxable profit.

On the other hand, there are some things in the accountants' profit on which the tax inspector may postpone payment of tax. In such instances the company may set aside profits in its accounts to pay "deferred tax" at the later date on which it becomes due.

When companies start to trade in a number of countries, they can find themselves liable to tax in more than one jurisdiction. A COMPANY will normally be liable for domestic tax on all its worldwide PROFIT, no matter where it arises. It may also owe tax on that same profit in the country in which it is incurred.

To help companies avoid being taxed twice on the same profit in two different places, many pairs of countries have so-called double-taxation agreements between themselves. These are often very complicated and deal with much more than company profits. They may include, for example, provisions to avoid the double taxation of income, DIVIDENDS or interest payments. The agreements normally allow companies that have been taxed on profits in the country where they arose to deduct those taxes from their tax bill in their country of residence. Moreover, when there is no double-taxation agreement, companies can often treat the tax paid abroad as a deductible expense when calculating their domestic taxable profit.

Listening Floating exchange rates versus a common currency

Professor Jean-Christian Lambelet is an economist who teaches at the universities of Lausanne and Geneva, in Switzerland. You will hear him talking about exchange rates.

Ex. 1. Before listening to the interview, look at this list of expressions. Underline the ones you would expect to hear in this context.

Accelerated depreciation, appreciated, capital flows, cash flow, common currency, floating rate note, flotation, freely floating, gold standard, managed fund, off-the-peg, pegged, pure floating.

Ex. 2. Now listen to the interview. According to what Jean-Christian Lambelet says, are the following statements TRUE or FALSE?

1. It seems likely that a world currency would be good for business.

2. A world central bank is a highly unlikely prospect.

3. There is often very little economic coordination between different countries.

4. A global tax system would be necessary to counter any serious global economic problems.

5. A common European currency is inevitable.

6. Floating exchange rates were first introduced in 1953.

7. In 1978, speculators attacked the Swiss franc.

8. The system we have is not perfect, but is the best that we can expect in an imperfect world.

Ex. 3. Now look at the half-sentences below, which have been extracted from the interview. Match up the halves, and then listen again to the interview to see if you were right.

If you had a world currency you'd have no exchange rates	To a common currency
It would mean, like under the gold standard, economic	because you'd also need to have some kind of world fiscal system
I would not be enough to have a world central bank good	a very stable and certain environment.
In European at one point there will have to be a jump	and that presumably would be for trade
Pure floating maybe would be	too unstable a system
Pegged exchange rates capital	and try to calm things down
Central banks do intervene	run into severe problems with flows

Ex. 4. Write a short history (200 words) of your national currency. (Over the past half-century, has it been fixed, or freely floating, or managed floating?)

DISCUSSION

Discuss:

• what are taxes

• the principal types of taxes

• the following statement: “Inflation is the cruellest tax.”

• the following: “In this world nothing can be said to be certain except death and taxes.”

• How it happen that a tax system is helping to achieve desired social and economic objectives and at the same time it is called an evil

• the statement that taxes are needed not to provide governments with money but to take money away from the public

• the kind of tax system do you think could best meet the interests of the government and the taxpayers?