Exemption is a method of double taxation relief that exempts foreign-source income from domestic taxation.

Exemption is a method of double taxation relief that exempts foreign-source income from domestic taxation.

• A. True
• B. False
• C. Specifically used for individuals only
• D. Not used in treaties

Answer: (A)

Exemption is a method of double taxation relief that exempts foreign-source income from domestic taxation. This means that when a resident earns income abroad, the home country does not tax that foreign income at all, even though it would otherwise fall within the home country's tax base. The tax on that income is typically paid in the foreign country, if applicable, and only domestic-source income is taxed domestically. This approach contrasts with the credit method, where the home country taxes on the resident’s worldwide income but provides a credit for foreign tax paid. Treatments under treaties can vary, but the basic idea described is exactly how exemption works.

Exemption is a method of double taxation relief that exempts foreign-source income from domestic taxation. This means that when a resident earns income abroad, the home country does not tax that foreign income at all, even though it would otherwise fall within the home country's tax base. The tax on that income is typically paid in the foreign country, if applicable, and only domestic-source income is taxed domestically. This approach contrasts with the credit method, where the home country taxes on the resident’s worldwide income but provides a credit for foreign tax paid. Treatments under treaties can vary, but the basic idea described is exactly how exemption works.