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I have a hard time understanding tax credit reliefs in double taxation agreements (DTAs). Take the following scenario:

  • Alice is only resident in Country A
  • Alice owns shares in a company Acme only resident in Country B
  • Acme pays Alice dividends on her shares
  • Country A has no allowance and charges a flat 5% on all dividends
  • Country B has no allowance and charges a flat 15% on all dividends

Will Alice be entitled to a tax credit relief of only 5% in Country A, or the full 15% (what she paid in Country B)?

I know that this depends on the specific rules of each DTA, but I assume there must be some kind of common sense applied to most agreements, no?

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Normally should be as you said.

The Logic here is that you can deduct the tax you already payed elsewhere from the tax you have to pay in your home-country.

So in Alice's case she already payed more in tax elsewhere - but you cant get more then a 100% deduction.

This means in effect that you always pay the highest possible rate in any of the countries involved, but not more. So if the tax rates where the other way around, Alice could deduct the 5% already payed and would pay the remaining 10% in her home country.

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  • thank you! But going back to my example, will she normally be entitled to 5%, or 15%? Stated otherwise, can she deduct in Country A the remaining 10% tax she paid extra on dividends in Country B? Commented Apr 16, 2020 at 16:54
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    You can never deduct more than what you have to pay. You wont get any money back from Country A just because you did pay it in Country B. You are only spared from paying the 5% again. Zero tax in country A is the best you can achieve. you are still stuck with the 15% in country B
    – Daniel
    Commented Apr 16, 2020 at 16:59

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