Double taxation is unique to C companies due to the structure of the entity. C companies are incorporated as separate entities by their owners, the shareholders, and must pay their own income taxes on the profits they make. When a C-Corp passes these profits on to its shareholders, the government recognizes it as income to the owners because they are a separate entity from the corporation. Thus, shareholders are also required to declare this as income and pay income tax on it. Double taxation is when taxes are paid twice on the same dollar of income, whether it is business income or an individual. What is the definition of double taxation? Double taxation is the taxation of the same income twice. The most common example of this tax policy is that of corporate dividends. Since the company makes a profit, it pays income taxes at the company level. These profits are retained in retained earnings until the company decides to distribute part of it to shareholders in the form of a dividend. The dividends distributed to shareholders are then taxed as personal income to natural persons. Thus, the company`s profits are taxed twice.
The term “double taxation” can also refer to the taxation of income or activity twice. For example, corporate profits can be taxed first if they are earned by the company (corporation tax) and again if the profits are distributed to shareholders in the form of a dividend or other distribution (dividend tax). PRINCIPLE OF NATIONALITY – A taxpayer`s nationality may affect how it is taxed and the nature of its tax burden, but comprehensive income tax treaties generally provide that foreign taxpayers should not be subject to discriminatory taxation on the basis of their nationality. NEGATIVE INCOME TAX — A proposed system to provide financial assistance to individuals and families living in poverty, taking advantage of existing income tax collection mechanisms. A low-income individual or family would receive a direct subsidy called a negative income tax. NEGLIGENCE – A lack of care or failure to do what a reasonable and normally prudent person would do in the circumstances. Net income — Net income is gross income minus deductible expenses related to income. Many countries levy income tax on this basis. NET OPERATING LOSS — Amounts by which business expenses exceed income for a tax year.
An entrepreneur`s operating losses are, on the whole, the excess of his operating expenses over the income from his business activities. NET INCOME — The difference between operating income and deductible business expenses, subject to any adjustment for tax purposes. NET PROFIT MARGIN — Ratio of operating income to gross income (or sales) NET WEALTH TAX — See: Wealth tax NET WORKING CAPITAL — Current assets minus current liabilities. WEALTH TAX — Many European countries levy wealth tax as part of the wealth tax. The tax base for resident taxpayers is generally the taxpayer`s global net worth, i.e. total assets minus liabilities and deductions and exemptions that are particularly permitted by tax laws. NEXUS link. – Often a requirement in tax law to determine liability or deductibility.
For example, expenses are deductible if they are “related” to gross income. In the United States, the taxable income of a multi-state corporation can only be attributed to a particular state if the corporation has a sufficient connection in the state. NOMINAL CAPITAL — The amount of capital defined as such in the articles of association. Typically, a certain minimum amount of nominal capital is required to form a legal entity. NOMINAL VALUE — See: Nominal value REGISTERED SECURITIES — See: REGISTERED NON-DISCRIMINATION SECURITIES — Tax treaties often contain a “non-discrimination article” which states that citizens or nationals of one country residing in the other country may not be subject to local taxation different from the tax payable to citizens and nationals of the host country in the same circumstances (including residence), or is more onerous than the tax to which citizens and nationals of the host country are subject in the same circumstances (including residence). UNQUALIFIED STOCK OPTION — A stock option that does not meet the incentive stock option requirement under U.S. tax law. The gap is taxed as ordinary income. DEBT WITHOUT RECOURSE – A debt for which a person has no personal responsibility.
For example, a lender may take the pledged asset as collateral to repay a debt, but has no recourse to the borrower`s other assets. NON-RESIDENT – Overall, a person who spends most of the calendar year outside their country of residence. Non-residents are generally taxed on income from sources located in the taxable territory, while residents can be taxed on global income. NON-RESIDENT ALIEN – A non-resident person who is not a citizen or national of the tax jurisdiction. NOTICE — The written decision of the tax authorities after reviewing a taxpayer`s tax return, determining the amount of taxable income and calculating the amount of tax due. NOTICE OF DEFECTS — See: Gap Only C companies face double taxation. Other types of businesses usually don`t have this problem. 1 Definition found for this term. Definitions are presented in the order in which the source books were published (most recent first). .