BILATERAL TAX AGREEMENT Meaning and
Definition
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A bilateral tax agreement, also known as a tax treaty or double taxation treaty, is a legally binding agreement between two countries that aims to prevent double taxation and encourage economic cooperation. This agreement sets out the rules and guidelines for the taxation of income or assets earned by individuals, businesses, or other entities that are subject to taxation in both countries.
The purpose of a bilateral tax agreement is to eliminate the double imposition of taxes on the same income or asset, ensuring that taxpayers are not unduly burdened with excessive taxation. It achieves this by allocating taxing rights between the two countries, specifying which country has the primary right to tax specific types of income or assets. The agreement also includes provisions for the exchange of tax-related information between the two countries, which enables effective tax administration and enforcement.
Bilateral tax agreements typically cover various aspects related to taxation, such as the treatment of dividends, interest, royalties, capital gains, and employment income. They may also include provisions to resolve tax disputes, clarify residency status, and prevent tax evasion and avoidance.
These agreements are essential for promoting cross-border trade and investment by providing a transparent and predictable tax environment for taxpayers. They reduce barriers to international business activities by providing certainty regarding tax liabilities and ensuring that taxpayers do not suffer from unfair tax treatment due to conflicting tax laws between the two countries.
