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Prevention of double taxation
The purpose of tax treaties is to prevent that taxpayers in several countries can be taxed for the same property or income.
Agreement between two countries
Tax treaties are agreements between two countries. The countries in question determine who can tax what situation in which situation. Both countries must respect these rules.
It can be determined that one country can tax a certain income or property entirely and the other country does not at all. It may also be the case that one country may tax a part (or apply a withholding tax) and that the other country may apply an additional tax. Sometimes also settlement clauses apply, sometimes entirely, sometimes up to certain limits, sometimes with formulas.
Tax treaties leading above national regulations
The tax treaties are above national regulations. In the event of disagreement, the content of a Tax Convention is the guiding principle.
Unfortunately, it is not the case that the Tax Treaties are all-encompassing. For example, in most tax treaties there are no provisions that prevent double taxation in the case of donations and inheritances.
Almost every treaty is different
Although most countries use the same international framework agreements, almost every tax treaty is different.
Tax treaties can be updated or renegotiated. Special advisors should be consulted on international issues.
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