Tax treaties coordinate how signatories tax transnational income flows to avoid double taxation and prevent fiscal evasion. Treaties affect the division of tax revenues and signal commitment to international ‘rules of the game’. Most of the 2,000 plus extant bilateral tax treaties are based on the OECD Model Tax Convention. Residence countries avoid double taxation of foreign-source business income by exempting it or providing credits for source-country taxes. Source-countries typically reduce withholding taxes on interest, dividends and royalties. Despite apparent differences, the economic effects of taxing worldwide income, with credits for foreign taxes, may resemble those of exempting it.
KeywordsArm’s length prices Business income Capital export neutrality Capital import neutrality Capital taxation Characterization of income Division of tax revenues Double non-taxation Double taxation Electronic commerce Exchange of information Fiscal evasion Foreign-source income, taxation of Formulary apportionment General Agreement on Tariffs and Trade Intangible assets Mutual Agreement Procedures Non-discrimination OECD Model Tax Convention Permanent establishment Portfolio investment Residence country Signalling Source country Tax competition Tax evasion Tax exemption Tax harmonization Tax havens Tax sparing Tax treaties Taxation of foreign income Transfer prices Treaty shopping UN Model Tax Convention Withholding taxes
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