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What does double taxation mean?


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Double taxation appears mostly as a consequence of tax legislation and refers to income taxes paid twice on the same source of earned income, asset or transaction.
There are two situations it can occur. 

First is when income is taxed at both the corporate level and personal level. (Eg. Double taxation often occurs when corporate earnings are taxed at both the corporate level and again at the level of shareholder dividends. That is, the earnings of a corporation are first taxed as corporate income and then, when that income has been distributed to the shareholders of the corporation in the form of dividends, these earnings are taxed as the personal income of the shareholders. Since the shareholders are the owners of the corporation, they are effectively paying taxes twice on the same income—once as the corporation owners and again as part of their personal income tax).

The second situation refers to double taxation in the international trade when the same income is taxed in two different countries.

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