How do international tax treaties affect cross-border income?.

International tax treaties are agreements between two or more countries that clarify how taxes are applied to cross-border income. They aim to prevent double taxation, promote transparency, and encourage investment by defining the taxing rights of each country involved.

Key Facts

• Over 3,000 tax treaties exist globally.
• These treaties often reduce withholding tax rates on dividends, interest, and royalties.
• The OECD Model Tax Convention serves as a framework for many treaties.
• Countries can exchange information to combat tax evasion under these treaties.

Examples or Use Cases

For instance, a U.S. resident earning rental income from a property in France may benefit from the U.S.-France tax treaty, which can lower the tax liability in France.

FAQs

• What are the benefits of tax treaties? Tax treaties help avoid double taxation and provide clarity on tax obligations for international business activities.
• Can individuals also benefit from tax treaties? Yes, individuals, especially expatriates, can benefit by reducing tax rates on foreign income.