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CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions

Under Article 23 of the OECD Model Convention, which method of relieving double taxation allows the residence state to tax worldwide income but allow a deduction from its tax equal to the tax paid in the source state, limited to the residence state tax attributable to that income?

The ordinary credit method. The residence state taxes worldwide income and credits foreign tax paid, but only up to its own tax attributable to that foreign income. This differs from the full credit method, which has no cap, and from exemption, which excludes the income.

  1. AExemption method
  2. BOrdinary credit methodCorrect
  3. CFull credit method
  4. DDeduction method for tax as an expense

Explanation

The ordinary credit method gives credit for source-state tax limited to residence-state tax on that income. The full credit method has no such limit. Exemption method excludes the income from residence-state tax. Deduction treats foreign tax as an expense only.

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