Double Taxation
A tax situation where the same income is subject to tax at two separate levels.
What is Double Taxation?
Double taxation describes a situation in which the same income is taxed twice. The most common domestic form occurs with corporate dividends: a C-corporation pays income tax on its profits at the entity level, and shareholders then pay income tax again when those profits are distributed as dividends. Double taxation also arises in international contexts when a foreign country taxes income earned locally and the investor's home country taxes the same income. Tax treaties and foreign tax credits help mitigate international double taxation.
Example
Apple Inc. earns $100 billion in pre-tax profit and pays the 21% corporate tax rate, leaving $79 billion. When Apple pays dividends from those after-tax earnings, individual shareholders pay dividend tax (0–20% for qualified dividends) on the same underlying income—demonstrating two layers of tax on corporate profits.
Source: IRS — Foreign Tax Credit