What are Tax Treaties? When a country levies a tax on the production, manufacture and sales of a goods, and if that product is actually sent to another country then it is not fair that the other country also place taxes on the sale of the goods since then it would imply that the person or company is forced to pay taxes for the same thing twice. This is called double taxation and it is in order to prevent such occurrences that we have come up with tax treaties.

These are basically agreements between countries as to what exactly are the taxes that they are going to charge on a certain product that unites the markets of both the countries. Thus is for example, a person produces some product in a country like Canada, then they are charged with all the relevant taxes that are involved with the manufacturing process and also with the assembly of the product. Next when they ship the product to another country like the United States, they are again charged with export taxes, etc. Now in order to make sure that the government of the United States does not end up levying taxes for the entire production and shipping process again, tax treaties are maintained between different countries.

These tax treaties are also called double taxation agreements for the above reason they are designed in order to prevent the taxation of some process twice in two countries. Thus they are essential for the basis of any trade agreement between the two countries. It is not illegal to do trade with two countries that do not possess any mutual tax treaties, but that is usually avoided since then one might be forced to pay the same taxes all over again.

These tax treaties are also called Tax Information Exchange Agreements since they also outline the methods or the ways in which any tax information that one country requires about an organisation that is based in another country, are obtained. This is a rather vital part of the relationship between any two countries and transcends boundaries of only economic matters since it might even be included under requirements for an official or martial investigation into any outfit or organisation.

Another way in which the tax treaties affect lives of people is when we consider a resident of one country like say, Canada makes most of his or her income in a neighbouring country like the United States. If he or she carries out sufficient amount of financial activities in the foreign country that makes her susceptible to taxation, then these tax treaties outline the basic methods as to how the two countries would go about the process of taxing the income generated by the person.

Thus clearly these tax treaties are an important part of the financial and economic dealing between two countries and can even end up affecting the lives of individuals as well. Hence it is important that people take their time in understanding the nuances of these policies so as to be fully informed about all their duties and benefits as well. What are Tax Treaties?

Add Your Comments:
Fields with * are required
Your Comment Below:
Enter Above Code
Note: Comments are moderated - Spam will be deleted

HOME | Contact | Disclaimer | About Us | Faqs | Discussion |