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Old 01-02-2018, 12:26 PM   #1
purplekeys
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Default What is Per Item Limitation regarding relief of double taxation?

In many legal systems, there is a per item limitation when it comes to relief of double taxation in international taxation law. For example, in Italian legislation, it states that "Should the foreign income be partially taxable in Italy, the foreign income tax shall be reduced in the same percentage". I have been told that to calculate the per item limitation, the equation is National tax X (Foreign Income)/(Overall Income).

The first part of my question, is what is the purpose of this per item limitation and who does it benefit?

The second part of my question is regarding the example which i have attached bellow. This example is meant to aid the understanding of how the per item limitation works, but it has confused me and I don t know if there is an error in the actual example or if I am incorrect.

If the income which was sourced abroad (1000) is taxed at 30% at source country, by the time it reaches the residence country, it will be only 700, not the 1000 which was added to the 2000 domestic income to then work out the 20% tax of 600. And technically, if ordinary tax credit is being applied to the income which arose abroad, shouldn't there not be any tax being considered for the income which arose abroad since the already paid more tax at source than what they would have to pay at the residence state?


Can anyone please give me a better example of how this should work?

Any insights and help is greatly appreciated. Thank you in advance.
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Old 01-07-2018, 07:39 AM   #2
olive
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Default Re: What is Per Item Limitation regarding relief of double taxation?

The best discussion and explanation I have ever seen of this issue is by Professor Ault in a presentation at the United Nations, and I will try to locate it and post it this afternoon.
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Old 01-10-2018, 11:57 AM   #3
Lexus
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Default Re: What is Per Item Limitation regarding relief of double taxation?

The tax paid on a certain category of income is credited up to the amount of tax due in the residence state as determined on the aggregate amount of tax paid for a certain category of income. The reason is that ordinary credit can create difficulties when high expenses are linked to foreign income.
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