What are Bilateral Tax Agreements?
Bilateral tax agreements, also known as double taxation treaties (DTTs), are agreements between two countries aimed at avoiding the issue of double taxation on the same income. These agreements facilitate cross-border trade and investments by determining how income earned in one country by a resident of another country will be taxed.
Purpose of Bilateral Tax Agreements
The primary purpose of these agreements is to promote international economic cooperation and prevent tax evasion. By coordinating tax policies, countries can establish where taxes should be paid and how much, thereby reducing conflicts and encouraging foreign investments.
Key Features
- Tax Relief: Individuals and businesses can benefit from reduced tax rates or exemptions on certain types of income.
- Information Exchange: Countries agree to share information concerning tax matters, improving transparency and compliance.
- Dispute Resolution: Agreements often include mechanisms to resolve disputes related to taxation.
Importance in International Taxation
For taxpayers, bilateral tax agreements are crucial as they help to avoid the burden of being taxed by two jurisdictions simultaneously. For governments, these treaties help to maintain a competitive edge by attracting foreign investment while ensuring that they do not lose tax revenue. Thus, bilateral tax agreements play a fundamental role in the framework of international taxation.