Question

2. Mr. Lee is a citizen and resident of Hong Kong, while Mr. Anderson is a citizen and resident of the U.S. In the taxation of income, Hong Kong uses a territorial approach, while the U.S. follows the global system. In terms of effect, explain what this means to Mr. Lee and Mr. Anderson.

Answer 1

Hong Kong follows a territorial tax system , whereas U.S.A follows a global system. In a teritorial system of taxation, a person is taxed in his country ,only on the income he receives from Hong KongmmR lee will only be liable to pay to the government the income he recieves from Hong Kong. In a global system ,for Mr. anderson, he is taxed for his global income , this may lead to his income getting taxed twice. To avoid this problem of double taxation, the foreign tax deducted may get credited back to the acoount.