Barron's International Tax Service

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Taxation Treaties

Double Taxation Treaties have evolved since the Second World War as a mechanism to facilitate world commerce. With the evolution of multi-national corporations and the popularity of living abroad, such treaties became increasingly imperative for the avoidance of double taxation. The United States in particular imposes upon its citizens and residents the requirement to report world-wide income on which the Internal Revenue Service levies taxes. However countries where multi-nationals and expatriates establish themselves as residents also often require world-wide income reporting with the result that the same income could be taxed twice.

Today these treaties exist between as many as 2,000 countries world-wide and 100 countries in Europe. See Publication 901 U.S. Tax Treaties for US treaty applications and countries contracted. Some basic objectives of such treaties include:

• Defining the scope and taxes covered, the legal entities involved, and tax treaty definitions;
• Establishing what constitutes tax residence in a contracting state;
• Clarifying when an enterprise is trading in as opposed to trading with a contracting state;
• Defining immovable property;
• Defining taxation of dividends, interest and royalty payments;
• Indicating the position of persons earning income from a contracting state;
• Specifying how double taxation is to be avoided in participating states;
• Focusing on Exchange of Information between contracting states. sfcgroup.com

According to IRS, U.S. citizens and residents subject to foreign taxation are entitled to certain credits, deductions, exemptions and reductions in the rates of foreign taxes. Most treaties allow taxpayers to take a credit against or deduction from the treaty country's taxes based on the U.S. tax on the income.

At TaxBarron we can sort out the complexities of treaty benefits to assure that you are being treated fairly.