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 theOrganisation 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.
Women and children pay the highest price when tax revenues are reduced through tax treaties, a research done by ActionAid, has shown.
Tax treaties are agreement between two countries to limit tax rights and regulate or even totally cancel a country’s taxation of foreign owned company regardless of how profitable the company is.
In the research, titled ‘The tax treaties that are depriving the world’s poorest counties of vital revenue’, ActionAid noted that “where states don’t have enough revenue to provide essential public services, it is more likely to be women who fill the gap with their bodies and time by providing unpaid labour and care”.
The organisation also said when taxes are inadequate, leaving nations, mostly developing ones, with less revenue for development, women, who have the reproductive and maternal needs and rely on health services for these needs are short-changed.
ActionAid, in its findings, said countries with extremely low tax collections suffer from the highest child mortality levels.
While a direct causal relationship has not been established, the organisation said it is not a coincidence since children, vulnerable to illnesses because of the young ages, cannot access adequate health when there is a shortage of funds that can be gotten from rightfully taxing foreign countries.
Actionaid also noted that “women are less likely to own the kinds of businesses where multinational tax breaks are available”.
The organisation said “tax avoidance strategies used by some multinational corporations deprive the world’s most impoverished communities of vital revenues”.