What are the key features of international tax treaties?.

International tax treaties facilitate cross-border trade and investment by providing clear rules on how tax obligations are determined and enforced. They primarily aim to prevent double taxation, enhance tax compliance, and promote economic cooperation between nations.

Key Facts

• Purpose: Avoid double taxation on income earned in foreign jurisdictions.
• Types: Most treaties follow the OECD Model Tax Convention.
• Income Types: Typically cover dividends, interest, royalties, and capital gains.
• Exchange of Information: Promote sharing of tax-related information between countries.

Examples or Use Cases

• A U.S. company operating in Canada can benefit from the U.S.-Canada tax treaty, ensuring it pays taxes only in its country of residence on certain income.
• An individual living in Germany but earning income in the UK can claim relief under the Germany-UK tax treaty to avoid being taxed in both countries.

FAQs

• What happens if a country does not have a tax treaty? If no treaty exists, income may be taxed in both countries, leading to double taxation. Taxpayers can often claim credits or deductions to mitigate this.

• Are all income types covered by treaties? Not all treaties cover every type of income. Each treaty specifies the types of income eligible for tax relief.