International Tax Treaties

Although they may seem complex, understanding these conventions is crucial for people living in an international context.

Find out more about International Tax Treaties

The existence of different rules according to domestic laws may lead to situations in which a person is considered to be resident in two or more countries.

If a person is considered to be resident by two countries which have concluded a tax treaty, the treaty will enable the conflict of residence to be settled by setting its own criteria which will take precedence over the criteria of national law.

The main purpose of a convention is therefore to prevent the same income, the same wealth, from being taxed in one country and then another.

What is an international tax treaty?

An international tax treaty is an agreement that aims to regulate tax matters between the signatory countries. It is therefore an international treaty, which is most often concluded between two countries. This is a bilateral convention. It is the result of negotiations between the country concerned, which may have different and conflicting objectives.

While each convention may vary according to the existing relationships between the signatory countries, modern tax treaties are almost all built on the same model. They are most often based on model conventions published by the OECD.

Generally speaking, it is a fairly comprehensive text, which differs according to the taxes concerned.

What taxes are covered by a tax treaty?

Most tax treaties deal primarily with income taxes and sometimes also with wealth taxes.

Other conventions concern inheritance and/or gift taxes.

What is the purpose of an international tax treaty?

Three objectives are generally sought:

The elimination of double taxation,
Avoiding tax evasion and fraud,
Enable taxpayer protection.

How does the international tax treaty work?

The international tax treaty works by determining the tax residence of taxpayers, which is essential since each country has its own concept of tax residence.

Generally, when an individual is considered to be a tax resident of a country, he is subject to unlimited tax liability and is therefore taxable on his worldwide income. That is, on income from sources outside that country.

On the other hand, non-residents of a country are taxable only on income arising in that country. International tax treaties generally include a series of articles that will distribute the right to tax among the signatory countries.

For example, in income tax treaties, each article will deal with a particular type of income (wages, real estate income, dividends …) and will determine for each of them which of the country concerned is entitled to tax.

Some income will be taxable only in the country of residence of the recipient of the income (this is often the case with private retirement pensions or capital gains from the sale of securities …), while others will be taxable, exclusively or not, in the country of their source (such as wages or income from immovable property).

However, reference must always be made to another article, which relates to the elimination of double taxation, and which therefore complements the previous articles.

Beata Majewska | BNP Paribas Wealth Management

"The main purpose of a tax treaty is to prevent the same income, the same wealth, from being taxed in one country and then another. In the absence of tax treaties, this could lead to double taxation."

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