Question

Camille, a citizen and resident of Country A, received a $1,000 dividend from a corporation organized in Country B. Which statement best describes the taxation of this income under the two different approaches to taxing foreign income?

a) Country B will not tax this income under a residence-based jurisdiction approach but will tax this income under a source-based jurisdiction approach.
b) Country B will tax this income under a residence-based jurisdiction approach but will not tax this income under a source-based jurisdiction approach.
c) Country B will tax this income under both a residence-based jurisdiction approach and a source-based jurisdiction approach.
d) Country B will not tax this income under either a residence-based jurisdiction approach or a source-based jurisdiction approach.

Answer 1

A

Step-by-step explanation:

Country B should be the one to tax Camile for the reason that facilities for the business are provided by this country, the opportunities that the firm have are also from country B meaning all the revenue is generated in country B so although the owner is a citizen of country A the business is sourced in country B.

Answer 2

A

Step-by-step explanation:

Governments generally apply two approaches to determine the nexus which are as follows:

1- Source based approach

2- Residence-based approach

Residence based approach states that worldwide income of taxpayers can be taxed by country where taxpayer owns citizenship. However, under source-based approach, only that portion of income which is earned from the sources within a country's boundaries can be taxed.

Here, C is the citizen of country A but dividend earned from a corporation located in country B.As income is sourced from country B, dividend will be taxed by country B under source based approach. As C is a citizen of country A, his income cannot be taxed by country B under a residence based approach.

Therefore, the correct statement is statement A