TAXA3000 Assignment 2: International Tax Systems Comparison

This report provides a comprehensive comparison of the tax systems of the United States of America and Australia, focusing on key aspects such as income tax, company tax, and consumption tax. It delves into the specifics of each tax type, detailing tax rates, brackets, and relevant regulations in both countries. The report also examines the role and significance of Double Tax Agreements (DTAs) and assesses the comprehensiveness of the USA's treaty network. Furthermore, it evaluates the tax systems of both countries based on criteria like simplicity, equity, certainty, and efficiency. The analysis includes a discussion of recent taxation issues and concerns that have been prominent in the USA's government, media, and business communities. The report aims to provide a clear understanding of the similarities and differences in the tax structures of the two nations, offering insights into their respective strengths and weaknesses.

Running head: REPORT 0
FOUNDATION OF INTERNATIONAL TAXATION
MAY 10, 2019
STUDENT DETAILS:

REPORT 1
Contents
Introduction............................................................................................................................ 1
America tax system................................................................................................................ 2
Income Tax......................................................................................................................... 2
Company Tax..................................................................................................................... 4
Consumption Tax................................................................................................................ 5
Double tax agreements.......................................................................................................6
Function and importance Double tax agreements...........................................................6
Ranking of American tax system regarding simplicity, equity, certainty and efficiency...........7
Conclusion............................................................................................................................. 7
Bibliography........................................................................................................................... 9
Appendix.............................................................................................................................. 10

REPORT 2
Introduction
Taxation is a significant economic issue like the political issue. Tax policies are
useful in promoting the agenda by adopting numerous taxation reforms such as
reducing tax rates or increasing tax rates, making changes in the meaning of taxable
income, making new tax over the particular products. No person mostly desires to
make payment of tax. Specific groups, such as farmers, owners of small business,
retired people, utilized important political efforts to decrease the shares of the
taxation burden. Tax policies have significant financial consequences for a central
economy as well as for the specific people within economy.
Tax policies are often made with intentions of motivating financial development even
though economists vary significantly regarding the policies, which are most real at
development or progress. Taxmay make incentives encouraging necessary
behaviour and discouragements for undesirable actions. Taxes provide the
resources to reallocate financial resources to those with lower income or specific
requirements (Lawrence, Bernstein, and Schmitt 2016). Tax provides the revenues
required for serious public services like social protection, healthcare services, state
defence, and learning. The policies related to tax markedly show the expression of
powers in United States of America. In the following parts, America tax system
including income tax, consumption tax, company tax, and Double Tax Agreements,
which USA has with other countries. This report also compares these elements of
that tax system of America to the tax system of Australia. The below mentioned parts
also evaluate the tax system of USA as per ranking in respect of easiness, equity,
inevitability and effectiveness.
America tax system
The USA has separate federal government, local government and state
government with tax imposed at all the stages. Taxes are levied on income,
properties, sales, payroll, import, capital gains, dividend, estate and gift, and
numerous fees. The residents or citizens of country are taxed on worldwide income
and permitted the credit for the international taxes (Nora and Pereira 2016). The tax
system of America can be explained below-
Income Tax
Income tax is possibly one of the most well-known methods of tax. In a case where
the people earn income in USA, they would see the deduction on the paycheck. All
the people who earn income in the USA is expected to make payment of income tax
on federal level as well as state level. The federal tax includes FICA as well as social
protection. Every state has its individual method of income tax, which managers also
withhold from thePay check. In a case where individuals earn above the specific
amount 6,750$, then they should file federal tax as well as state tax before 15 April
of every year.

REPORT 3
Further, taxes are levied on net income of corporation and individual by the federal
state, most state, as well as certain local governments. The tax systems in each
jurisdiction can describe the taxable income distinctly. Various states refer to certain
scope to federal concept for defining the taxable income. The income tax is
calculated by implementing the tax rate that can rise as income rise, to taxable
income that is total income less permissible deduction from income. The income is
largely described. The companies as well as companies are taxable in direct way,
and estate and trust can be taxable over unallocated incomes. In addition, the
partnerships are not taxed; however, the partners are taxed upon the share of
income related to partnership. Residents of United States of America are taxed on
international incomes, when taxes are levied on the income of non-residents within
the jurisdiction. Various kinds of credits decrease the taxes. On the other hand,
certain kinds of credits cango beyond tax prior to credit. A substitute tax relates to
the federal level and certain state levels (Vito 2018).
Most business expenses are deductible. The individual may also deduct the personal
allowances or exemptions and meet individual expenditures, involving interest on
home mortgage, state tax, contribution to donations, and certain more items.
Additionally, there are certain somedeductions are subject to limit.Capital gain is
taxable. The capital loss reduces taxable income to a level of gains (plus, in some
cases, 3,000 $ or 1,500 $ of normal incomes). Individual recently pays the tax with
low rate on capital gain and some corporate dividend (Andrew 2017, 199-219).
Furthermore, the taxpayer usually must self-assess income tax by tax return’s filling.
Tax’s advance payment is essential in respect of projected tax paymentor
withholding tax. Taxes are subject to separate jurisdiction levying taxes. Due date
and other administrative processes differ by jurisdictions. Tax as calculated by the
taxpayer can be adjusted by taxation jurisdiction (Allison, Schoen, and Shay, 2018).
The tax in Australia covers under inspection for being specifically higher. To state
whether these claims are correct, the tax rates in Australia are compared with
America below.
Australia Individual Tax Rate
Resident tax rates 2018–19
Taxable income Tax on this income
0 – $18,200 Nil

REPORT 4
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000
$180,001 and over $54,097 plus 45c for each $1 over $180,000
The above mentioned rates do not cover Medicare levy of 2%1. (The ATO –
Individual Income Tax Rates)
As per the above-discussed income brackets in Australia and tax rates at which all
are taxed, the Australian tax system can understand clearly. In the situation, when
individuals earn above 18,200$, then they also have to begin paying the 19c for each
$1 above $18,200. The individuals have to pay $3,572 plus 32.5c for each $1 above
$37,000 as soon as people earn above 37,000$. Further, when individuals earn
above 90,000$, then they have to pay $20,797 plus 37c for each $1 over $90,000.
The individuals have to pay $54,097 plus 45c for each $1 over $180,000 as soon as
people begin to earn above 180,001$. Obviously, only the smaller minority attain this
high tax rate slab (Diego, Hallerberg, and Scartascini 2016). However, this still
influences the economy, as most of the businesses select to run from out of country,
and individual works to some extent less to ignore having to make payment of these
highest rates. The pros of these highest income taxes are the greatly operating
nation, constantly voted as one of leading ten most functional in sphere. Likewise,
indirect tax like GST is among the lower most all over the world (Lawrence,
Bernstein and Schmitt 2016).
US income tax
Tax Brackets and Rates, 2019
Rate
For Unmarried
Individuals, Taxable
Income Over
For Married Individuals
Filing Joint Returns,
Taxable Income Over
For Heads of
Households, Taxable
Income Over
10% $0 $0 $0
12% $9,700 $19,400 $13,850
22% $39,475 $78,950 $52,850
24% $84,200 $168,400 $84,200
32% $160,725 $321,450 $160,700
1

REPORT 5
Rate
For Unmarried
Individuals, Taxable
Income Over
For Married Individuals
Filing Joint Returns,
Taxable Income Over
For Heads of
Households, Taxable
Income Over
35% $204,100 $408,200 $204,100
37% $510,300 $612,350 $510,300
Income tax in America is applicable to any earnings, from 10% rate. When this is
heavy on lower earners, tax rate does not increase affectedly as earning does. The
24% tax rate is only valid for the individuals who earn above 84,200 $. A highest slab
of 37% is just appropriate for the individuals who earn above 510,300 $ (Individual
income tax rate). As per the comparison of tax system between America and
Australia, income tax rates of USA are much lower for the higher earner. It creates
this thespecificallysmart place to do trade. In this way, sending cash from America to
Australia is very simple. In conclusion, in Australia the tax rates are the highest rates
in all over the world. In comparison of the USA, high earner would be making
payment far higher rate on much lower income (Joshua 2019).
Company Tax
The Corporate Tax Rate of USA is currently more in line with those applied by other
developed countries. The Tax cut as well as Jobs Act (TCJA) decreased the federal
company tax rate of USA from 35% to 21%. This, together with outlaying
advantages, will render the extensive helpful fiscal compulsion above upcoming 2
years. There is sure to be certain great effects on GDP in upcoming few years. Even
more surely, there would be the important broadening of a budget shortage like from
3% of GDP to more than 5%. Government debt is projected to increase from about
eighty per cent of GDP to about hundred per cent in ten years (Nigar and
Epifantseva 2017).
In Australia, the influences of company tax cuts are quite different due to the system
of company tax accusation of Australia. Because of accusation, company tax for
shareholders of Australia is properly the withholding tax, which isrepaid to them at
the time of payment of dividend. As per the interest of stakeholders of Australia, the
corporations have no enticements to enhance the investments in relation to the cuts
in corporate tax system of Australia. The direct advantages of the cuts are confined
to international investors, with a greatest advantage going to present international
investors. Low company tax must influence certain new international investors to
Australia. For most of the international investors, tax paid is an offset to tax paid at
homes while profit is settled; lower company tax of Australia, so, only means more
taxes at home, without incentives for further investments (Kristin 2018, 269).
Moreover, for various international investors who come to Australia, corporate tax is
not the major problem. These international investors come to get particular means,
benefits from the geographical positions, or to expand the marketplace by adding
customer of Australia who they require to services with theexistence here.Other

REPORT 6
international investors organise the affairs to not to make payment or less payment
of tax in Australia: decreasing the legal rate here has nil impacts over them. It is
specifically correct for huge technical corporations like Amazon, Google, as well as
Facebook, wherever intellectual properties create this simple to shift the profit to
lower-taxationdominions. For any corporation encouraged greatly through corporate
tax, the 25% rate would not induce it away from the very lower rate over offers in
Singapore and Ireland. In conclusion, rather than continue the race-to-a-bottom over
corporatetax, the foreign communities requires to agree on the sensible international
regime that apportions corporate tax revenues amongst the numerous nations
included in producing the revenues.
Consumption Tax
Various nations covering members of the OECD raise revenues with the
consumption tax applied over incremental increases in the product’s value as well as
service’s value as they move by a supply chain. The VAT for short generates
substantial income and are relatively proficient to administer. USA is the only
Organization for Economic Cooperation and Development nation, which applies the
retail sales tax in place of VAT as a main consumption tax (Judith 2016, 328-339).
Further, in Australia, GST covers in the category of consumption tax. Other nations
have various variations of consumption tax normally labelling theirs as VAT. With
approaching the tax reforms, the comparison with consumption tax of different
nations can establish enlightening. America utilises the retail sales tax in place of
VAT. This tax, though, is not the central tax, in its place, state government as well as
local government is liable for the management. Currently, 45 American states apply
the tax involving thousands of local government levies that are as same as the retail
sales taxes. Since the Organization for Economic Cooperation and Development
categorizes retail sales tax and Value added Tax under the similar title of
consumption tax, this guesses that consumption tax shows just eight per cent of the
American total tax revenues, creating this the lowest in Organization for Economic
Cooperation and Development (Christopher, and Garnaut 2017)
Double Tax Agreements (DTAs)
There are various countries, which have entered in Double Tax Agreements or tax
treaties with different nations to avoid or mitigate double taxation. Under Double Tax
Agreements, residents of outside nations are taxed at the decreased rate, or are
exempt from American tax on various income items they get from means in USA.
These reduced rates and exemptions vary amongst nations and particular income
related items (Olivier, Jara, and Rodriguez 2017, 369-392).
USA made double tax agreements with various countries (Refer Appendix). Under
the double tax agreements, American residents are taxed at the decreased rate, or

REPORT 7
are exempt from the international tax, on some income related items they get from
mean in international nations. Most tax treaties cover what is known as the saving
clause that stops the citizens and residents of USA from utilising the DTA provisions
to ignore tax of USA income sources. Various individual American states tax income
that is sourced in the states. For that reason, it is required to consult the state tax
authorities from that individual derive income to search whether the state taxes levy
to any income. Certain income states do not honour the tax treaties provisions
(Richard and Zolt 2015, 323-335).
Function and importance Double Tax Agreements (DTAs)
The main function of Double Taxation Agreements is to eradicate double tax in a
matter of cross-nationwide income flow. The more significant characteristics of
double tax avoidance agreements is that they render final principles in comparison of
domestic tax laws in relation to tax of foreign incomes. These agreements are very
significant because these agreements can cover the variety of tax such as VAT,
income tax, inheritance tax, or other tax (Nicholas et. al, 2018).
Furthermore, double tax avoidance agreements are very important because avoid
double tax by considering particular tax law of 2 nations. Besides, double tax
avoidance agreements as foreign tax treaties frequently render taxation data
exchange. These taxation exchange data lower the managerial cost of tax. Another
benefit is that there are legal certainties in double tax avoidance agreements, as
there are particular rules for taxation global incomes. It motivates international
investment to establishing nations where are tax certainties. Moreover, these
agreements also incorporate anti-abusive provisions to make sure that the
advantages of these agreements are attained by the real residents of 2 nations. With
these agreements, investor needs not depend on conflicting country tax rule; rather
tax of foreign income covers under the double taxation agreement rules
(Hermione 2018).
In addition, USA makes its own rules on who are the residents for the purpose of
taxation; someone can be subject to a claim by 2 states on the incomes. There are
certain matters, where one state would provide the credit for tax paid to different
state, however not all time. Therefore, USA has a comprehensive treaty network
(Rifat, et.al, 2015, 1230-1247).
Ranking of American tax system regarding simplicity, equity, certainty and
efficiency
There are various people who want to have the tax system, which is simple to
understand. In USA, campaigner for the more basic tax code frequently campaign for
the flat tax where the flat percentage will be charged on income. With American tax
system, millions are spent each year for filing tax (Ciaran 2017).
Further, the campaigners also point to the equity of tax system. It will not be more
just or reasonable if everybody paid similar percentage. American tax system allows

REPORT 8
paying tax according to the income. Furthermore, the American tax system clearly
specifies at what percentage tax is to be paid, and how an amount to be paid is to be
decided. Consequently, in America, the administrative costs as well as compliance
costs to collect the tax kept to the minimum for government as well as taxpayers. In
this way, American tax system is effective in terms of above discussed criteria
(Richard 2015, 181-205).
Conclusion
As per the above analysis, it can be concluded that Australia ranks amongst
the highest in Organization for Economic Cooperation and Development nation for a
percentage of complete tax revenues, which are taken from individual income tax.
From the above discussion, it is also found that Australian pay more taxes in
comparison of America. However, relative to other high taxes and low taxes nations
in the OCED, not by much. The actual differences are in how the revenues are
spent.

REPORT 9
References
Atun, Rifat, Luiz Odorico Monteiro De Andrade, Gisele Almeida, Daniel Cotlear,
Tania Dmytraczenko, Patricia Frenz, Patrícia Garcia et al. 2015. "Health-system
reform and universal health coverage in Latin America." The Lancet 385, no. 9974,
1230-1247.
Bargain, Olivier, H. Xavier Jara, and David Rodriguez. 2017. "Learning from your
neighbor: tax-benefit systems swaps in Latin America." The Journal of Economic
Inequality 15, no. 4, 369-392.
Barr, Nicholas, Bruce Chapman, Lorraine Dearden, and Susan Dynarski. 2018. "The
US college loans system: Lessons from Australia and England." Economics of
Education Review.
Bird, Richard M., and Eric M. Zolt. 2015. "Fiscal Contracting in Latin America." World
Development 67, 323-335.
Braithwaite, Valerie. 2017. Taxing democracy: Understanding tax avoidance and
evasion. Routledge.
Burkhauser, Richard V., Markus H. Hahn, and Roger Wilkins. 2015. "Measuring top
incomes using tax record data: A cautionary tale from Australia." The Journal of
Economic Inequality 13, no. 2.181-205.
Christians, Allison, Wolfgang Schoen, and Stephen E. Shay. 2018. Foreword:
International Tax Policy in a Disruptive Environment. Edward Elgar Publishing.
Findlay, Christopher, and Ross Garnaut. 2017. The political economy of
manufacturing protection: Experiences of ASEAN and Australia. Routledge.
Focanti, Diego, Mark Hallerberg, and Carlos Scartascini. 2016. "Tax reforms in Latin
America in an era of democracy." Latin American Research Review 51, no. 1, 132-
158.
Hashimzade, Nigar, and Yuliya Epifantseva. 2017. The Routledge Companion to Tax
Avoidance Research. Routledge.
Hickman, Kristin. 2018. "From capital gains to tax administration, and everything in
between: in honour of Professor Chris Evans." eJTR 16, 269.
Individual income tax rate’. The ATO. https://www.ato.gov.au/Rates/Individual-
income-tax-rates/
Kahrl, Andrew W. 2017. "Investing in distress: Tax delinquency and predatory tax
buying in urban America." Critical Sociology 43, no. 2,199-219.
Lustig, Nora, and Claudiney Pereira. 2016. "The Impact of the Tax System and
Social Spending in Income Redistribution and Poverty Reduction in Latin
America." Hacienda Pública Española 219,121.

REPORT 10
Mishel, Lawrence, Jared Bernstein, and John Schmitt. 2016. The state of working
America: 1992-93. Routledge.
Mishel, Lawrence, Jared Bernstein, and John Schmitt. 2016. The state of working
America: 1996-97. Routledge.
O'faircheallaigh, Ciaran. 2017. Mining and development: foreign-financed mines in
Australia, Ireland, Papua New Guinea and Zambia. Routledge.
Parker, Hermione. 2018. Instead of the Dole: an enquiry into integration of the tax
and benefit systems. Routledge.
Tanzi, Vito. 2018. "Tax reform in Latin America: a long-term assessment: Factors
that. Shape the Demand and Supply of Taxes." In The Ecology of Tax Systems.
Edward Elgar Publishing.
Thornton, Joshua. 2019. American Automation Tax Policy. Routledge.
Yates, Judith. 2016. "Why does Australia have an affordable housing problem and
what can be done about it?." Australian Economic Review 49, no. 3. 328-339.
Appendix

REPORT 11

REPORT 12

REPORT 13