What is BB’s liability to tax in Country Y in respect of the dividend income received?

Country X charges corporate income tax at the rate of 20% on all income irrespective of whether it is paid out as a dividend. Country Y charges corporate income tax at the rate of 25% on all income.

An entity, AA, which is resident in Country X pays a dividend of $100,000 to another entity, BB, which is resident in Country Y.

Countries X and Y have a double taxation treaty which adopts the exemption method in respect of this type of transaction.

What is BB’s liability to tax in Country Y in respect of the dividend income received?
A . No tax will be payable.
B . Tax will be payable at 20%.
C . Tax will be payable at 25%.
D . Tax will be payable at 25% less a credit given for the 20% already paid by AA in Country

View Answer

Answer: A