DTAs

DTAs, or Double Taxation Agreements, are bilateral treaties between two countries designed to prevent the same income from being taxed twice and to facilitate cross-border trade and investment. They allocate taxing rights between the resident countries and provide mechanisms to relieve double taxation, commonly through a foreign tax credit or an exemption.

Core provisions cover residence and source, define permanent establishment, and specify how different categories of income are taxed, including business profits, employment income, dividends, interest, royalties, and capital gains. DTAs typically reduce withholding taxes on cross-border payments and set out the applicable tax rates.

Key relief mechanisms include the foreign tax credit method, where tax paid abroad is credited against domestic tax, and the exemption method, where the income is exempt in one state. Tax credits are usually limited to the tax payable in the other state, with relief forms and ordering rules.

Disputes over treaty interpretation are often resolved through the mutual agreement procedure (MAP). DTAs also enable exchange of information and assistance in tax collection. In response to BEPS, many treaties include anti-abuse provisions such as limitation on benefits (LOB) clauses or the principal purpose test.

Most DTAs follow model conventions from the OECD or the United Nations, and are negotiated bilaterally. A multilateral instrument enacted in the BEPS project allows changes to many treaties simultaneously. DTAs influence tax planning and are a frequent point of negotiation in trade relations.

Critics point to residual complexity, inconsistent application, and potential for treaty shopping. While beneficial for international activity, developing countries may seek more favorable terms or capacity-building to maximize revenue protection.