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Tax sparing credit
Tax treaties between developing countries and foreign investors often include a provision for double taxation relief, known as "tax sparing." This refers to a situation where a developing country offers tax incentives to attract foreign investment, and the foreign company is a resident of a country with which a tax treaty has been established. In this case, the other country may provide a credit against its own tax for the amount of tax that the company would have paid if not for the tax incentives. This provision is designed to encourage foreign investment while also addressing potential issues of double taxation.
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