Final answer:
For Mary, a U.S. expatriate, to avoid double taxation, the tax avoidance approach is not recommended as it may lead to a financial disadvantage although it is technically legal. The tax equalization, tax protection, and tax reimbursement approaches are designed to ensure she is not financially harmed by double taxation.
Step-by-step explanation:
Mary, a U.S. expatriate working in Belgium, should consider approaches to avoid double income taxation while maintaining residences in both countries. However, not all approaches will benefit her financially. Let us examine the options:
- Tax equalization approach: This approach endeavors to ensure that the expatriate's tax burden is equal to what it would be in their home country. The employer typically covers any excess taxes, ensuring the expatriate is no worse off financially.
- Tax protection approach: In this approach, if the total taxes paid are less than what would have been paid in the home country, the expatriate gets to benefit from the difference. However, if the total taxes are more, the employer reimburses the excess to protect the expatriate's income.
- Tax reimbursement approach: Similar to tax protection, the expatriate is reimbursed for taxes paid over what would have been paid in their home country. This is a reactive measure after the fact.
- Tax avoidance approach: Tax avoidance schemes, which are legal methods to reduce tax liabilities, may not always be advantageous. They can be complex, subject to change, and sometimes lead to significant financial or legal repercussions if not managed correctly.
Among these options, d) Tax avoidance approach will NOT place her at a financial advantage. Tax avoidance schemes may save money initially, but can also result in unexpected costs and complications, potentially putting Mary at a financial disadvantage.