Publication date: 28.06.2024
International double taxation treaties
The tax burden is one of the key issues for businesses operating in multiple jurisdictions. Double taxation occurs when the same income is taxed in different countries, resulting in additional financial costs for taxpayers. To solve this problem, countries enter into international double taxation treaties (DTTs) that regulate the taxation of income received by residents of one country from sources in another country. In this article, we will look at the main aspects of international double taxation treaties, their role and importance, as well as the legal aspects to be taken into account when applying them.
What are international double taxation treaties?
International double taxation treaties are intergovernmental agreements that regulate the taxation of income and property received by residents of one country from sources in another country. The main purpose of such agreements is to prevent double taxation and promote international trade and investment.
Basic principles of double taxation treaties
The principle of residence
The principle of residence means that the country in which an individual or legal entity is a resident has the priority right to tax the income of that person. However, in the case of income from sources in another country, special rules may apply to avoid double taxation. Legal advice will help determine which country has the right to tax certain income in accordance with international agreements.
Source of income principle
The source of income principle means that income is taxed in the country from which it originates. This applies, in particular, to income from dividends, interest, royalties, real estate income, etc. Legal analysis of documents will help determine in which country specific income should be taxed.
Methods of avoiding double taxation
There are two main methods of avoiding double taxation: the exclusion method and the set-off method. The exclusion method provides that income taxed in one country is excluded from taxation in the other. The set-off method provides that the tax paid in one country is offset when paying taxes in another country. A legal analysis of the situation will help to choose the most favourable method for a particular taxpayer.
The role of international agreements in tax planning
International double taxation treaties are an important tax planning tool for international companies and individuals earning income abroad. The use of such agreements helps to reduce the tax burden, prevent double taxation and ensure the stability of tax liabilities. Legal advice will help you develop an effective tax planning strategy that takes into account international agreements.
Legal aspects of the application of international agreements
Compliance with treaty requirements
Taxpayers are obliged to comply with the requirements of international agreements and submit the relevant documents to the tax authorities to confirm the right to apply the agreement. This may include submitting certificates of residence, income tax returns and other documents. A legal review of the documents will help ensure that the required documents are properly prepared and submitted in a timely manner.
Appealing against decisions of tax authorities
If the tax authorities refuse to apply an international agreement or invalidate the submitted documents, the taxpayer has the right to appeal such decisions in administrative or judicial proceedings. A written consultation with a lawyer will help you prepare the necessary documents for appeal and ensure effective protection of the taxpayer's rights.
Resolving tax disputes
International agreements on the avoidance of double taxation contain provisions on mechanisms for resolving tax disputes between the participating countries. This may include mutual agreement procedures, arbitration procedures and other methods of dispute resolution. Legal advice will help to determine the best method of resolving tax disputes and ensure proper protection of the taxpayer's interests.
Conclusions
International double taxation treaties are an important tool for ensuring stability and predictability of tax liabilities for taxpayers operating in several jurisdictions. It is important to know the basic principles of such agreements, their application and legal consequences in order to ensure an appropriate level of support and protection.
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