What Is Economic Double Taxation?
Economic Double Taxation refers to taxation of the same income in the hands of two different taxpayers, typically a company and a dividend-receiving shareholder.
Also known as: Double Taxation of Corporate Profits, Dividend Double Taxation.
How Economic Double Taxation works
Economic Double Taxation occurs when profits are taxed first at the level of the company earning them and then again when distributed to shareholders as dividends, so two separate taxpayers bear tax on one economic income stream, often across two countries. Relief depends on domestic law and, between EU companies, on Directive 2011/96/EU, whose Article 4 requires the parent's Member State either to exempt qualifying distributions or to credit the underlying corporation tax. Individual shareholders may instead receive imputation credits, reduced dividend rates or no specific relief, depending on the country. Transfer pricing adjustments between associated enterprises can create the same effect, which treaties address through corresponding adjustments.
Economic Double Taxation vs Juridical Double Taxation
Unlike juridical double taxation, where one taxpayer is taxed twice on the same income by two states, Economic Double Taxation involves two different taxpayers taxed on the same underlying profit.
Example
Illustrative example: A consultant resident in Country A owns a company in Country B. Country B taxes the company's profits, then Country A taxes the dividend received by the consultant, while a foreign tax credit in Country A generally covers only any dividend withholding tax.
Common misconception
Myth: A double tax treaty removes all double taxation on dividends from an owned foreign company.
Reality: Most treaties mainly relieve juridical double taxation of the dividend itself, while relief for underlying corporate tax depends largely on domestic law.
Frequently asked questions
What is the difference between economic and juridical double taxation?
Economic Double Taxation taxes the same profit in the hands of two different taxpayers, such as a company and its shareholder, whereas juridical double taxation taxes one taxpayer twice on the same income in two jurisdictions.
How is economic double taxation relieved?
Economic Double Taxation is relieved through participation exemptions, underlying tax credits, shareholder imputation credits or reduced dividend rates, depending on domestic law; within the EU, Directive 2011/96/EU requires exemption or credit for qualifying parent companies.
Related terms
- Double Taxation — Broader concept including the juridical form
- Participation Exemption — Common corporate relief for intra-group dividends
- Double Taxation Relief — Methods used to remove double taxation
- Dividend Withholding Tax — Source tax adding a further dividend layer
Related guides
- Singapore dividends guide — Country example of dividend taxation layers
- Estonia company profit distribution tax — Distribution-based corporate taxation example
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
