Hi everyone,
Could someone help me out with this example from Schwesser:
Text
An individual living in a country that bases income tax on residency has total worldwide income of 1,500,000. 600,000 of that amount is generated in a source jurisdiction country. The domestic country charges 40% income taxes on worldwide income, and the source country charges 35% taxes on income generated within its borders.
Determine the income taxes paid on the foreign source income and the country or countries to which it is owed under the Credit method.
Answer
Source country tax is: 600,000(0.35) = $210,000.
Residence country tax would have been: 600,000(0.40) = $240,000. Taking a 210,000 credit leaves $30,000 owed to residence country.
Total taxes are $240,000.
My query
The answer seems to imply that the individual would pay the source country first before paying the residence country. Is this always the case? For example, would there be a scenario where the tax payer pays of $240k to residence country and does not have to pay the source country at all?
Thank you.