وزارة التعليم العالي والبحث العلمي
جامعة زيان عاشور
كلية العلوم االقتصادية والتسيير علوم تجارية
Department of finance and accounting
G : 01
Tax treaty
Student Names :
Arar Yassine
Alal Talal
Bakria Abdelrahmane
2019/2020
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.
The provisions and goals vary significantly, with very few tax
treaties being alike. Most treaties:
define which taxes are covered and who is a resident and
eligible for benefits,
reduce the amounts of tax withheld from interest, dividends,
and royalties paid by a resident of one country to residents of
the other country,
limit tax of one country on business income of a resident of the
other country to that income from a permanent establishment
in the first country,
define circumstances in which income of individuals resident in
one country will be taxed in the other country, including salary,
self-employment, pension, and other income,
provide for exemption of certain types of organizations or
individuals, and
provide procedural frameworks for enforcement and dispute
resolution.
The stated goals for entering into a treaty often include
reduction of double taxation, eliminating tax evasion, and
encouraging cross-border trade efficiency. It is generally
accepted that tax treaties improve certainty for taxpayers and
tax authorities in their international dealings.
Several governments and organizations use model treaties as
starting points. Double taxation treaties generally follow the
OECD Model Convention and the official commentary and
member comments thereon serve as a guidance as to
interpretation by each member country. Other relevant models
are the UN Model Convention, in the case of treaties with
developing countries and the US Model Convention, in the case
of treaties negotiated by the United States.
Tax residency
In general, the benefits of tax treaties are available only to tax
residents of one of the treaty countries. In most cases, a tax
resident of a country is any person that is subject to tax under
the domestic laws of that country by reason of domicile,
residence, place of incorporation, or similar criteria.
Generally, individuals are considered resident under a tax treaty
and subject to taxation where they maintain their primary place
of abode. However, residence for treaty purposes extends well
beyond the narrow scope of primary place of abode. For
example, many countries also treat persons spending more than
a fixed number of days in the country as residents. The United
States includes citizens and green card holders, wherever living,
as subject to taxation, and therefore as residents for tax treaty
purposes. Because residence is defined so broadly, most treaties
recognize that a person could meet the definition of residence
in more than one jurisdiction (i.e., "dual residence") and provide
a “tie breaker” clause. Such clauses typically have a hierarchy of
three to five tests for resolving multiple residency, typically
including permanent abode as a major factor. Tax residency
rarely impacts citizenship or permanent resident status, though
certain residency statuses under a country's immigration law
may influence tax residency. This includes the '183 day rule'
when the right of abode is invoked.
Entities may be considered resident based on their country of
seat of management, their country of organization, or other
factors. The criteria are often specified in a treaty, which may
enhance or override local law. It is possible under most treaties
for an entity to be resident in both countries, particularly where
a treaty is between two countries that use different standards
for residence under their domestic law. Some treaties provide
“tie breaker” rules for entity residency,[13] some do not.
Residency is irrelevant in the case of some entities and/or types
of income, as members of the entity rather than the entity are
subject to tax. The OECD has moved away from place of
effective management to a case-by-case resolution using
Mutual Agreement Procedure (MAP) for determining conflicts of
dual residency.
Withholding taxes
Many tax systems provide for collection of tax from non-
residents by requiring payers of certain types of income to
withhold tax from the payment and remit it to the tax
authorities. Withholding arrangements may apply to interest,
dividends, royalties, and payments for technical assistance. Most
tax treaties reduce or eliminate the amount of tax required to
be withheld with respect to residents of a treaty country.
Harmonization of tax rates
Tax treaties usually specify the same maximum rate of tax that
may be imposed on some types of income. As an example, a
treaty may provide that interest earned by a nonresident
eligible for benefits under the treaty is taxed at no more than
five percent (5%). However, local law in some cases may provide
a lower rate of tax irrespective of the treaty. In such cases, the
lower local law rate prevails.
Priority of law
Treaties are considered the supreme law of many countries. In
those countries, treaty provisions fully override
conflicting domestic law provisions. For example, many EU
countries could not enforce their group relief schemes under
the EU directives. In some countries, treaties are considered of
equal weight to domestic law. In those countries, a conflict
between domestic law and the treaty must be resolved under
the dispute resolution mechanisms of either domestic law or the
treaty.
