Agreement on Avoidance of Double Taxation: An Overview

The Agreement on Avoidance of Double Taxation (ADT) is an international treaty that aims to prevent the same income or capital from being taxed twice by two different countries. The ADT applies to cases where there are two or more countries involved in the taxation of a certain income or capital.

The ADT is a bilateral agreement between two countries and is typically negotiated between their respective tax authorities. Once signed, the ADT would enable taxpayers to claim tax credits in the country where they are resident for taxes paid on income earned in the other country.

The ADT is important to both individuals and businesses operating in two or more countries, as they would otherwise be subject to double taxation. Double taxation can occur when a person or business is taxed by both their home country and the country where they have earned income or profit. The ADT ensures that tax is only paid once, either in the country where the income or profit was earned or in the country of residence.

The treaty also helps to promote international trade and investment by reducing barriers to cross-border business activities. It provides certainty to taxpayers by establishing clear rules for the taxation of their income and capital.

The ADT typically covers income from various sources, including dividends, interest, royalties, pensions, and capital gains. It may also cover other taxes such as inheritance tax, gift tax, and wealth tax. The specific terms of the ADT would vary depending on the countries involved in the agreement.

To claim the benefits of the ADT, taxpayers would need to fulfill certain conditions. In most cases, they would need to prove their residency in one of the countries involved in the agreement, as well as the source of their income or capital. They may also need to submit supporting documents such as tax returns, certificates of residency, and proof of payment of taxes.

In summary, the ADT is a crucial international treaty that helps to prevent double taxation and promote cross-border trade and investment. It provides certainty to taxpayers by establishing clear rules for the taxation of their income and capital, and enables them to claim tax credits in their country of residence for taxes paid in another country. If you are a taxpayer operating in two or more countries, it is important to be aware of the ADT and its terms to ensure that you are not subject to double taxation.