Nowadays, commercial activity has become globalized and many companies have extended their operations across borders. When a company operates in several countries the dilemma suddenly arises: where should income be reported? where should taxes paid?
Every country has its own tax regulations, and per their sovereignty, a company could be required to pay taxes in the countries where it conducts its enterprises.
It was looking for tax justice, that the principle of double taxation was conceived and developed. This principle prohibits governments from taxing the same individual for the identical concept or activity.
This predicament has led nations to establish various measures in order to avoid double taxation. Internal legislation has been enacted to regulate this issue, but faced with the impossibility to completely solve the problem; countries have resorted to international treaties in order to reach a more integral solution.
Costa Rica has joined this initiative and currently has signed treaties with Spain, United States and with some Central American countries.
The existence of these agreements in order to avoid double taxation is essential to promote foreign investment, as they provide legal security to investors and reduce taxation to such investments, and ultimately avoid for investors, disadvantageous scenarios for competitiveness.
Currently, the potential admission of Costa Rica to the Organization for Economic Cooperation and Development (OECD), will further impulse this initiative, since one of the objectives of the entry of Costa Rica to this organization is to improve the business climate within the country and ensure the security of the investments made in national territory.