The following are Bases of international tax system:
Tax neutrality
To keep the economic efficiency from being affected the international tax system should remain neutral. For the nationality of the invester or the locality of the investment not to be influenced, a neutral tax is important.
Such an environment will allow capital to move from a nation with lesser return to a nation with higher return, resulting in well allocated resourses that will ensure a high gross world output.
Tax equity
The principle of tax equity states that all equally positioned tax players contribute in the cost of operating the government according to the equal rules. The concept of equity can be perceived in two ways.
It is assert by the first view that the input of each tax player must be consistent with the amount of public services as received. The second maintains that the contribution of each tax player must be in terms of their ability to pay.
Avoidance of double taxation
The avoidance of double income asserts that one must not be taxed twice for the same income. However, double taxation occurs if the recipient of post-tax income in a foreign country is taxed again.
As an alternative, the requirements of foreign tax credits may be formed in the domestic tax system.
