What Is the Difference Between a Tax Credit and an Exemption?

Double tax treaty is a bilateral tax treaty signed between countries in order to avoid and eliminate double taxation of the same taxpayer on the basis of the same income. Income taxes are levied by various countries, and they exercise their tax jurisdiction to varying degrees based on the principle of source of income and the principle of residence of the taxpayer. If there is no mutually acceptable coordination arrangement between the country where the taxpayer resides and the country where the income comes from, it will often result in overlapping taxation. . Therefore, after the Second World War, with the development of international capital flows, labor exchanges and trade exchanges, the signing of double tax avoidance agreements between countries has increasingly received international attention.

Avoid double tax treaties

Right!

Avoid double tax treaty

Due to the differences in the level of economic development among countries, the flow of funds and technology between countries is

Generally includes the scope of the agreement, the necessary explanations of the definition of terms, the taxation treatment principles and scope division for each income classification, and exclusion

Coordinating

Avoid

More and more in recent years

The structure of the United Nations tax treaty model is divided into seven chapters, twenty-nine articles, such as the scope of the agreement, definitions, taxation of income, taxation of property, special provisions for the elimination of double taxation, and final provisions. Avoid and eliminate double taxation, avoid and prevent tax discrimination, and exchange of information to prevent cross-border tax evasion. Its formation indicates that the adjustment of international tax relations has entered a mature stage. It pays more attention to territorial jurisdiction than the OECD model agreement, and is easily accepted by developing countries. At the same time, certain provisions are flexible enough to help the contracting parties to agree on the specific provisions of the agreement in light of their respective national circumstances. Therefore, it is also easily accepted by countries with different conditions. The creation of a model UN tax treaty has promoted the signing of more and more bilateral tax treaties between developed and developing countries and the standardization of the provisions of such tax treaties. The Model Convention for the Avoidance of Double Taxation with Respect to Taxeson Income and on Capital is a model of economic cooperation and The model text developed by the Development Organization to coordinate the tax relations between countries and sign bilateral international tax agreements is one of the current models of international tax agreements with widespread influence. Referred to as the OECD model tax treaty.

On February 25, 1955, the Council of the European Economic Cooperation adopted for the first time a proposal on avoiding double taxation, and a Finance Committee was established in March of the following year. In July 1958, the Finance Committee, in accordance with the decision of the council, began to draft a model agreement and specific comments on the implementation of double taxation on income and property. From 1958 to 1961, the organization's Finance Committee was entitled "Elimination of Double Taxation". , Has published 4 reports, listing a total of 25 provisions on the elimination of double taxation. In 1961, the European Economic Cooperation Organization was reorganized into the Organization for Economic Cooperation and Development (OECD, OECD for short), and its member countries are: Australia, Austria, Canada, France, Federal Germany, Japan, Luxembourg and other 24 countries. The Finance Committee continued its work and later introduced new provisions, which were incorporated into the Draft Agreement on Avoiding Double Taxation of Income and Property, published in 1963, along with previous provisions.

The draft provides a basic model for bilateral tax treaties signed between more than 20 developed countries. After 1967, after 10 years of revision, the model of the international organization's tax treaty was finally issued in 1977.

The model agreement has 7 chapters and 30 articles, which is one more "regional expansion" than the United Nations Model Agreement on Avoiding Double Taxation between Developed and Developing Countries. The main contents are: avoiding and eliminating double taxation; avoiding and preventing tax discrimination and preventing transnational tax evasion. Because of its rigorous structure and strong generality, the basic framework, chapter arrangement and most of the provisions of this model agreement have been adopted by the United Nations model tax treaty. The model is mainly based on the situation of developed countries and does not give enough consideration to the tax rights and interests of developing countries. Therefore, when signing bilateral tax treaties, developing countries refer more to the model UN tax treaties that can properly take care of regional jurisdiction.