Exemption method

Tax Glossary Definition

Exemption method

The exemption method is a provision found in international tax treaties that allows a resident country to omit certain types of income earned abroad from its taxable base when that income has already been subject to tax in the country of origin. This mechanism minimizes double taxation and promotes international business and investment by preventing the same income from being taxed in both jurisdictions.

Example: For instance, if an Indian company operates a branch in France and pays taxes on its profits there, India may exclude those profits from domestic taxation under the exemption method, thereby avoiding double taxation.

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