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Suppression of cumulative effects of dividend taxation and participations in profit according to OECD model of tax agreement

This paper presents analysis of dividend and participations in profit taxation effects. We investigated the effects of dividend and participation in profits taxation according to OECD model as well as methods of double taxation avoidance, then taxation of dividends and participations in profit in Croatian agreements about double taxation avoidance and finally harmonization of dividends and participations in profit taxation in European Union with the overview on Croatia. The problem of double taxation appears by international mutual exchange of goods and services when resident of one country member receives income from other country member, and both countries have right to tax that income according to their laws. Our analysis results show that Croatian system of dividend taxation has been mainly harmonized with EU Directives. Croatia applies exemption system of taxation of domestic, incoming and outcoming dividends. Croatia has aborted from the reciprocal principle because of foreign investments attraction. With the date of Croatian entrance into European Union, other member countries will be obliged to apply Parent-Subsidiary Directive which will eliminate the problem of nonequal treatment of incoming dividend by comparison with domestic and outcoming dividends in Croatia. The main goal of Parent-Subsidiary Directive was to adjust certain aspects of income taxation because of undisturbed capital flow across borders of EU member countries.

dividend taxation; participations in profit; OECD model; cumulative effect; Croatia; harmonization

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