International-Tax-Glossary

1InternationalTaxGlossary©2009Deloitte.Allrightsreserved2InternationalTaxGlossary:AA•ActiveIncome:Incomeoriginatedinactivetradeorbusiness.ContrarytoPassiveIncomelikeinterest,royalties,dividends,andcertainrentalamongothers.•AdditionalWithholdingTax:anamountcollectedbysuppliersonbehalfofTaxAuthoritiesinadditiontothenormalsalepriceandapplicableindirecttaxes.CustomersconsiderthisamountasaTaxCredit.•AG:(Aktiengesellschaft)Germancorporation•Arm’slengthprinciple:transactionsbetweenrelatedpartiesthatareagreedasiftheyweremadebetweenun-relatedentities.•Amortization:Thedeductionofcapitalexpensesoveraspecificperiodoftime.Similartodepreciation,itisamethodofmeasuringtheconsumptionofthevalueoflong-termassets.Usuallyusedforintangibles.2©2009Deloitte.Allrightsreserved3InternationalTaxGlossary:BB•BacktoBackarrangement:anarrangementinwhichconditionsarematchedtoamirrortransaction•Basket:methodadoptedbysomecountriestogroupdifferenttypesofincome,lossesand/orTaxCredits.•Beneficialowner:Apersonwhoenjoysthebenefitsofownership.•Bindingruling:mandatoryanswerfromTaxAuthorities•Blacklistedcountries:Ablacklistisaregisterissuedbythetaxlegislationofcertainjurisdictions,whichdetailscountriesorentitiesthataresubjecttoreducedorniltaxation,becauseoftheirgeneralorspecialregimes.Usuallythislistisusedtodenycertaintaxbenefits,triggerCFCrules(accelerationoftaxation),increasewithholdings,etc.•Boardofdirectors:governingbodyofacorporation.•Branch:Anoperationinaforeigncountryofacompanyincorporatedinthehomecountry.Itisnotaseparatelegalentity,butthesameonedoingbusinessinanothercountry.•Businesspurpose:avalideconomicreasonformakingatransaction.Linkedtosubstanceoverformprinciple.•BV:DutchLimitedLiabilityPartnership©2009Deloitte.Allrightsreserved4InternationalTaxGlossary:CC•CapitalGain:Anincreaseinthevalueofacapitalasset(investmentorrealestate)thatgivesitahigherworththanthepurchaseprice.Thegainisnotrealizeduntiltheassetissold.•CarryForward–CarryBack:methodstousetaxlosses/creditsgeneratedinonefiscalyearagainstthetaxableprofitsoffutureorformerfiscalyear.•ControlledForeignCorporation–CFC:Itisaconceptdescribingalegalentitythatexistsinaforeignjurisdictionbutisownedorcontrolledbytax-residentsofadifferentjurisdiction.CFClawswereintroducedtostoptaxevasionthroughtheuseofoffshorecompaniesinlow-taxorno-taxjurisdictionssuchastaxhavens.UsuallyprofitsfromaCFCcompanyarerecognizedwhenaccrued.•Checktheboxrules(US):procedureusedtoselecttaxstatusofaforeignentity.3©2009Deloitte.Allrightsreserved5InternationalTaxGlossary:CC•CorporateTax:Incometaxappliedtolegalentities.•Corporation:Alegalentitythatisseparateanddistinctfromitsowners.Corporationsenjoymostoftherightsandresponsibilitiesthatanindividualpossesses;thatis,acorporationhastherighttoenterintocontracts,loanandborrowmoney,sueandbesued,hireemployees,ownassetsandpaytaxes.Themostimportantaspectofacorporationislimitedliability.Thatis,shareholdershavetherighttoparticipateintheprofits,throughdividendsand/ortheappreciationofstock,butarenotheldpersonallyliableforthecompany'sdebts.•Creditmethod:doubletaxationiseliminatedormitigatedbytwomethods:exemptionandcredit.Thesecondoneallowstaxpayerstoreducetheirtaxburdenbydeductingtaxespaidinotherjurisdictionsasataxcreditagainsttheirlocaltax.•Cross-bordertransactions:transactionswithaforeignparty.•CV:Dutchlimitedpartnership.©2009Deloitte.Allrightsreserved6InternationalTaxGlossary:DD•Debt/Equityratio:Ameasureofacompany'sfinancialleverageusuallycalculatedbydividingdebtbystockholderequity.CertainTaxLegislationsdisallowthededuction(usuallypartially)ofinterestforcompanieswithhighD/Eratios.Someevenre-categorizeinterestpaymentsfromthesecompaniesasdividends.•Deemedexpense/income:certainTaxLegislationspresumetheexistenceofcertainexpensesorincomeundercertaincircumstances.•Deferredtaxes:Accountingmethodtorecordincometax.•Depreciation:Thedeductionofcapitalexpensesoveraspecificperiodoftime.Similartoamortization,itisamethodofmeasuringtheconsumptionofthevalueoflong-termassetslikeequipmentorbuildings.•Depletion:Thedeductionofcapitalexpensesconsideringaspecificconsumptionformula.e.g.unitsofproduction.•Directtaxes:taxesonincomeorcapital.Contrarytoindirecttaxes.4©2009Deloitte.Allrightsreserved7InternationalTaxGlossary:DD•Disregardedentity:entitywhichisnotconsideredasaseparatebodyforpurposesofdeterminingtaxationofsubsidiaries.•Domesticsourceofprofit:Incometaxusuallyseparatestaxationrulesbetweenlocalandforeignsourceincome.Thisrelatestolocalsource.•Doubleormultipledip:structurethatallowsdoubleormultipledeductionofagivenexpense(mainlyinterest).•Doubleormultipletaxation:whenacompanymakesbusinessintwoormorejurisdictionsitispotentiallysubjecttotaxationinallorsomeofthem.Thismaygeneratedoubleormultipletaxation.•DoubleTaxationConvention/Treaty–DTCorDTT:agreementsignedbetweentwoormoreStatesinordertoavoidormitigatedoubleormultipletaxation.•Dualresidencecompany:CompanythatisconsideredasresidentintwoStatesbecauseofdifferentcriteriaofresidencestatusdefinedinTaxLawsofsuchStates.©2009Deloitte.Allrightsreserved8InternationalTaxG