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Double taxation
The principle of double taxation applies to corporations in which the same income is taxed twice. Taxes are paid firstly at the corporate level on earned income. Dividends subsequently paid to shareholders out of corporat earnings, then attract income-tax liability. In this way, the same income is subject to double taxation
Flow-through taxation
The principle of flow-through taxation is applied to partnership models. With this method of taxation the partners pay tax only on their “distributive share” of the partnership’s taxable income whether or not this income is distributed to the partners. Flow-through taxation is also applied to US limited liability corporations that have not elected to be treated as corporations for taxation purposes.