What DBA is good for

Double taxation treaty

In which Double taxation treaty it is an international treaty with which double taxation is to be avoided. An agreement can be made between two states (bilateral) or between several states (multilateral).

A uniform taxation law is negotiated should a tax object take on a cross-border dimension. In addition, the focus is on combating tax evasion with political cooperation.

What is the double taxation agreement for?

To a Tax dispute it can come if by a legal person income can be obtained in two states. For example, a company abroad generates a profit that is to be offset domestically. In this case, both states have the right to levy taxes. This leads to double taxation, which must be avoided with the double taxation agreement.

The agreement are subject to principles that must be followed in the practice of international tax law. The country of residence principle specifies that a legal person is taxable in the country in which they have their main residence. The source country principle stands in the way of this. According to this, a legal person is taxable in the country in which it generates its income. The world income principle is a prerequisite, according to which world income may only be taxed once. This is complemented by the principle of territoriality, according to which income is taxed in the territory in which it was generated. Internal laws regulate which principles are applied and to what extent.

The model agreement

The OECD (Organization for Economic Cooperation and Development) developed in joint cooperation. The result is a model agreement (OECD-MA). This is complemented by model conventions developed by the United Nations. In addition, the United States of America is drawing up its own model convention. This is a prerequisite for the subsequent negotiations so that a uniformly developed double taxation agreement can be formed.

Key facts at a glance:

  • Avoidance of tax conflicts
  • International tax law
  • Updates from the OECD