This chapter projects Chapters 1 and 2 into an international setting by considering how the corporate tax system behaves when international factors are introduced. It continues to presume the capital structure of the corporation does not change. The focus is on the differing jurisdictions to tax resident versus non-resident corporations, and the chapter is structured around this distinction. Three cross-border options where there is a jurisdiction to tax are identified for each of resident and non-resident corporations. The relationships between these options are considered with a particular emphasis on how the tax outcome differs from a purely domestic setting. With respect to resident corporations, it is noted that corporate-level dividend relief does not work well when foreign income is derived, but shareholder-level systems do. By contrast, shareholder-level dividend relief systems do not work well in the context of outbound dividends, but corporate-level dividend relief systems can (but are restricted by recent international norms). Corporate-level dividend relief does not work at all with respect to non-resident corporations. Here many countries’ corporate tax systems distort the choice of whether a non-resident should create a presence through a branch or subsidiary.

Considers tax treaty limitations on residence country taxing rights, including the obligation to provide foreign tax relief and methods of relief for double taxation, especially the exemption method and credit method. The treaty obligation is compared to the limited approach under EU Law. The separate legal identity of corporations causes two problems for foreign tax relief. First, economic double taxation of corporate income results if the tax charge cascades on distributions up a chain of corporations. Methods of underlying foreign tax relief or indirect foreign tax relief are considered. Second, controlled foreign corporations may be used as a dividend trap or method of avoiding tax. Rules to address these are discussed. The second heading considers methods of calculating foreign income and the impact on foreign tax relief. Here there are few rules in tax treaties but burgeoning EU case law. Allocating expenses between foreign and domestic activities is critical when calculating the volume of exempt foreign income or, under the foreign tax credit method, the limitation on credit. Expenses may produce losses. The treatment of foreign losses on domestic income and domestic losses on foreign income are considered. Finally, cross-border intragroup losses under various systems of group relief are considered.