The term tax treaty is used to describe an agreement that reduces, or eliminates, the double taxation that can occur when an individual or company resides in multiple jurisdictions. The objectives of a tax treaty include reducing double taxation, lowering the frequency of tax evasion, and encouraging trade.
Also known as a bilateral tax agreement, a tax treaty is an arrangement that reduces or eliminates the double taxation of individual residents as well as corporations. Treaties may include profits (earnings), income (wages), inheritance, sales, royalties, capital gains, as well as value added tax. A tax treaty can be an agreement between countries, territories, states, counties or even townships.
The process of eliminating double taxation involves the exchange or sharing of taxpayer information as well as mutual assistance in the collection of taxes owed. The provisions of a tax treaty may include: