A Double Taxation Agreement is a treaty acknowledged by two countries to protect residents who conduct business operations between two locations against the risk of double taxation where the same income tax is liable in both locations. These agreements allow businesses to operate between these two locations without paying excessive taxes, providing certainty for cross-border trade and investment. One of the primary goals of these agreements is to guarantee that one country cannot claim all the tax generated from residents who operate in both and provide equality across tax earnings.
Most Double Taxation Agreements are based on models developed by the OECD and The UN, and are put in place for a variety of reasons. These may include ;
- Facilitating outbound investment. This can be achieved by removing or reducing double taxation on investment in the other country. Reducing excessive sources of that country’s taxation. Removing or reducing tax discrimination on investments in the other country.
- Encouraging inbound investment, transfer of skills, and technology. This can be achieved by reducing or removing double taxation on inbound investments or transfers. Reducing excessive sources of taxation in that country. Developing a closer relationship between tax authorities and businesses (through mutual agreement procedures) and maintaining the benefits of tax concessions and tax holidays.
- Reducing cross-border tax evasion by mutually assisting in tax collection
- Political reasons- such as sending a message of willingness to adopt international tax norms, fostering diplomatic relations with another country or complying with international obligations and pressures.
Whilst there is a broad scope of reasons behind why a country might negotiate a double tax agreement and many benefits to structuring your international business operations around operating withing a double taxation agreement (DTA), primarily for both however, is the increase of investment. By effectively utilising a DTA your business can ensure that it is not losing excessive profit or income.
At Animo Associates, we are fortunate to reside in jurisdictions that operate with multiple tax treaties, providing peace of mind for our clients who operate internationally. For further insights on best practice for your business operations, get in contact with us today by filling out our contact form below, calling us on +44 (0) 207 060 0835 or emailing us at firstname.lastname@example.org, where one of our expert consultants will be happy to advise.