Question

***this is a International Finance Course***

Analyze tax treaties and purposes.

Your response should be at least 200 words in length.

Answer 1

A tax treaty is a bilateral agreement made by two countries to resolve issues involving double taxation of passive and active income. Tax treaties generally determine the amount of tax that a country can apply to a taxpayer's income, capital, estate, and wealth. Countries with tax havens are the only countries that typically do not enter into tax treaties.

A tax treaty is also called a Double Tax Agreement (DTA).

Many countries have entered into tax treaties(also called double tax agreements, or DTAs) with other countries to avoid or mitigate double taxation. Such treaties may cover a range of taxes including income taxes, inheritance taxes, value added taxes, or other taxes. Besides bilateral treaties, multilateral treaties are also in place. For example, European Union (EU) countries are parties to a multilateral agreement with respect to value added taxes under auspices of the EU, while a joint treaty on mutual administrative assistance of the Council of Europe and the Organisation for Economic Co-operation and Development (OECD) is open to all countries. 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.

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