10 Facts About Tax treaties

Tax treaties tend to reduce taxes of one treaty country for residents of the other treaty country to reduce double taxation of the same income.

Double taxation treaties generally follow the OECD Model Convention and the official commentary and member comments thereon serve as a guidance as to interpretation by each member country.

In general, the benefits of tax treaties are available only to tax residents of one of the treaty countries.

Some Tax treaties provide “tie breaker” rules for entity residency, some do not.

Many Tax treaties explicitly provide a longer threshold, commonly one year or more, for which a construction site must exist before it gives rise to a permanent establishment.

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Also most treaties provide for limits to taxation of pension or other retirement income.

Many treaties provide for other exemptions from taxation that one or both countries as considered relevant under their governmental or economic system.

Such treaties specify what persons and property are subject to tax by each country upon transfer of the property by inheritance or gift.

Some treaties specify which party bears the burden of such tax, but often such determination relies on local law.

Some treaties thus require each treaty country to assist the other in collection of taxes, to counter the revenue rule, and other enforcement of their tax rules.