Legal Definitions - juridical double taxation

Juridical double taxation occurs when the same individual or company is taxed by two different countries on the same income or capital for the same tax period.

This situation arises because different countries have different rules for determining who or what they can tax. One country might tax based on where a person lives (residency), while another might tax based on where the income is earned or where an asset is located (source). When these rules overlap, the same income or asset can become subject to tax in both jurisdictions, leading to juridical double taxation.

Here are some examples:

• Example 1: Cross-Border Employment Income

  Imagine Sarah is a citizen of Country A but lives and works full-time in Country B. Country B taxes her salary because she earns it within its borders. However, Country A, based on its citizenship or worldwide income rules, also claims the right to tax Sarah's entire income, even though she earned it abroad. In this scenario, Sarah's salary is being taxed by both Country A and Country B for the same tax year, illustrating juridical double taxation.

• Example 2: International Business Profits

  Consider "GlobalTech Inc.," a software company legally established in Country X. GlobalTech Inc. also has a significant branch office in Country Y, where it generates a portion of its annual profits. Country Y taxes the profits earned by the branch office within its territory. Simultaneously, Country X, where GlobalTech Inc. is headquartered, taxes the company's entire worldwide profits, including those generated by the branch in Country Y. This results in the same profits from the Country Y branch being taxed by both Country X and Country Y.

• Example 3: Capital Gains from Property Sale

  David, a resident of Country M, owns a vacation home in Country N. When David sells the vacation home, Country N imposes a capital gains tax on the profit from the sale because the property is located within its borders. At the same time, Country M, based on its rules for taxing residents' worldwide income and assets, also requires David to report and pay capital gains tax on the profit from the sale. David is thus subject to tax on the same capital gain by both Country M and Country N.