Double Taxation Conventions

Double taxation conventions, also known as tax treaties or tax agreements, are agreements between two countries that aim to eliminate or mitigate the issue of double taxation that may arise when an individual or a company is subject to tax in both countries. These treaties allocate taxing rights between the two countries and provide mechanisms to avoid or reduce double taxation. There are several types of double taxation conventions, which can vary in their provisions and scope.

Comprehensive double taxation convention: These conventions cover most types of income and provide comprehensive rules for the elimination or reduction of double taxation. They typically include provisions for the allocation of taxing rights on various types of income, such as business profits, dividends, interest, royalties, and capital gains.

Limited double taxation convention: These conventions focus on specific types of income or activities. For example, there may be a separate treaty solely addressing air and sea transport, or a treaty that applies only to income from dividends, interest, or royalties.

Exchange of information agreements: These agreements primarily focus on facilitating the exchange of tax-related information between countries to combat tax evasion and promote transparency. They may not cover the elimination or reduction of double taxation in detail but instead aim to enhance cooperation in tax matters.

Tax sparing agreements: Tax sparing provisions can be included in double taxation conventions to promote foreign investment by granting tax incentives. Under these provisions, the country of residence of the taxpayer "spares" or allows a credit for taxes that would have been payable in the source country but were foregone due to specific tax incentives or exemptions granted by the source country.

Tax Information Exchange Agreements (TIEAs): TIEAs are bilateral agreements that focus specifically on the exchange of information for tax purposes. They are often used to facilitate cooperation in tax matters between countries that do not have a comprehensive double taxation convention.

The specific types and provisions of double taxation conventions may vary depending on the countries involved and their individual tax systems. It is important to consult the specific tax treaty between two countries to understand the provisions and benefits applicable to a particular situation.