OECD Tax Database - OECD
DTAs generally over-ride domestic law. Benefits of Double Tax Agreements Double tax agreements offer the following benefits: DTAs clearly lay down the rules for division of revenue between two countries and how tax is to be imposed in each. In other words, DTAs define the jurisdictional authority on transnational trade.
DTAs help taxpayers of one country know the potential limits of their tax liabilities in the other country. DTAs allow taxpayers to claim for relief for taxes paid overseas. Who benefits from DTAs? Normally, certification of resident status will be required. DTAs are not applicable to non-residents of either country.
Defining the concept of Permanent Establishment PE : Defining a PE is important as business profits attributable to a PE as defined in the domestic legislation are liable to get taxed in the jurisdiction of the PE.
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In other words, the existence of a PE is used as a basis for determining the source of business profits. A PE refers to a fixed place of business through which the business of an enterprise is wholly or partly carried out. This includes a place of management; a branch; an office; a factory; a workshop; a house; a warehouse; a stall; a mine, oil or gas well or quarry; a building or construction site or installation project lasting more than 12 months. Dividend income : Dividend income can be taxed in the country of source i.
The income is also liable to tax in the country of residence i.
Normally the country of source will impose a reduced dividend withholding tax rate. Since Hong Kong does not tax dividends, no tax is imposed, irrespective of whether the DTA permits Hong Kong to impose a tax on dividend.
Whether the dividend income is taxable in the treaty country would depend on the domestic tax laws of that country and what the treaty specifies. Interest : Interest is usually taxed at a reduced withholding tax rate in the country in which the interest income arises source country.
The reduced tax rate depends upon the negotiation between the respective jurisdictions. Royalties : The tax treatment of royalty income varies from DTAs signed with different countries. Income from employment : Employment income will be taxed in Hong Kong if the employment is exercised in Hong Kong unless: a The employee is not present in Hong Kong for more than days in a tax year, or b His employer is a resident of the contracting country, or c His remuneration is not borne by a permanent establishment in Hong Kong of an enterprise of a contracting country.
The full domestic tax rate would apply, as there is no exemption or reduced tax rate. Airline or shipping profits : Airline or shipping profits derived by an enterprise of one country from the other country are usually entitled to full tax exemption in the other country. The enterprise will be taxed only in its country of residence. For instance, profits derived by a Hong Kong air transport enterprise or shipping enterprise from its air transport or shipping business in China will be taxed in Hong Kong alone. It is exempt from tax in China.
Business profits : The profits of an enterprise are taxable only in the country in which the enterprise is resident. If the enterprise carries out business in the contracting country through a PE situated in the contracting country, the enterprise is liable to tax in the contracting country as well. The right to tax gains : The right to tax gains arising from the sale of immovable property and gains from sale of shares varies with DTAs signed with different countries.
Government payments : Any salary, wage, pension, or similar rewards for personal services paid by the government of a contracting country to persons performing services in Hong Kong on behalf of that government are exempt from tax in Hong Kong and will only be taxed in the contracting country. Income from immovable property : Income from immovable property is usually taxed in the country of source where the property is situated.
Under the credit method, the residence jurisdiction is required to grant a tax credit for tax payable in the source jurisdiction. In other words, the tax payable in the source jurisdiction is to be deducted from the tax payable on the same income in the residence jurisdiction. The tax credit is limited to the amount of tax payable on that income in the residence jurisdiction.
Tax exemption : Under the exemption method, foreign income is exempt from domestic tax. The exemption may be given on the entire or part of the foreign income.
Reduced tax rate : This form of relief taxes income at a lower rate and is usually applicable to interest, dividends and royalties. Examples of what amendments may concern: the taxing rights of Contracting States, the applicable rates of withholding at source. The Multilateral Instrument provides for simultaneous modification of a number of provisions in bilateral tax treaties without making changes to every treaty one by one. The date when the Multilateral Instrument comes into force in Finland was 1 June However, any two contracting states of bilateral tax treaties will not start applying the Multilateral Instrument until such time as the Instrument has come into force in both of them.
These notices are listed under every tax treaty in force, and under treaty amendments, if any. These provisions are the introductory chapter of tax treaties, which addresses the purpose of the treaty, the provision on preventing treaty abuse, the revised provisions on the mutual agreement procedure, and the provision on corresponding adjustments related to transfer pricing of group enterprises.
Regarding the other provisions, Finland made reservations, i. This means that Finland, on its part, will not apply the provision of the Multilateral Instrument. Instead, it applies the provision of the existing bilateral tax treaty.
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When applying the provisions of tax treaties, one must take account of the original tax treaty, its protocols of amendments, of the Multilateral Instrument, and of any reservations and notifications that the contracting states have made. In addition, for the treaties that the Multilateral Instrument modifies when applied, the website will post all the relevant provisions having an impact on the tax treaty concerned.
This will be presented in a compilation document. A line will be added below the heading of every tax treaty, containing information on updates and relevant compilation documents.