Double taxation agreements (DBAs) are contracts between two or more countries to avoid international double taxation between income and wealth. The main objective of the DBA is to distribute the right of taxation among the contracting countries, to avoid differences, to guarantee equal rights and security of taxpayers and to prevent tax evasion. The concept of double taxation of dividends has been the subject of considerable debate. While some argue that the taxation of shareholders on their dividends is unfair because these funds have already been taxed at the corporate level, others argue that this tax structure is fair. The agreement may also include the imputation method by which income collected in another country is included in the tax base of the country of residence income tax return. In this second method, the state of residence deducts either the entire tax paid in the State of origin (taken into account total), or the amount of tax that would be owed in the State of residence if the income had been collected on the spot (partial imputation). To avoid these problems, countries around the world have signed hundreds of contracts to avoid double taxation, often based on models from the Organisation for Economic Co-operation and Development (OECD). In these treaties, the signatory states agree to limit their taxation of international companies in order to strengthen trade between the two countries and avoid double taxation. According to a study carried out by Business Europe in 2013, double taxation remains a problem for European SMEs and a barrier to cross-border trade and investment.   Problems include limiting the ability to deduct interest, foreign tax credits, stable settlement issues, and differences in qualifications or interpretations. Germany and Italy have been identified as the Member States where most cases of double taxation have been identified. You will probably need to seek professional advice if you are in a double taxation situation. We`ll tell you how to find an advisor on our “Get help” page.
Cyprus has 45 double taxation agreements and is negotiating with many other countries. Under these agreements, a credit is normally accepted against the tax collected by the country in which the taxpayer is established for taxes collected in the other contracting country, resulting in the taxpayer not paying more than the higher of the two rates. Some contracts provide for an additional tax credit that would otherwise have been due had it not been provided for incentives in the other country, which would have resulted in an exemption or tax reduction. A tax treaty is a bilateral (bipartisan) agreement between two countries to resolve issues related to the double taxation of each citizen`s passive and active income. Income tax agreements generally determine the amount of tax a country can apply on a taxpayer`s income, capital, estate or wealth. An income tax agreement is also called the Double Tax Agreement (DBA). In recent years [when?], the evolution of foreign investment by Chinese companies has increased rapidly and has developed quite influentially. As a result, cross-border tax treatment is becoming one of China`s major financial and commercial projects, and cross-border tax problems are growing. In order to solve these problems, multilateral tax treaties between countries that can legally help businesses on both sides avoid double taxation and find solutions to tax issues are put in place.
In order to implement China`s “comprehensive” strategy and to help domestic companies adapt to globalization, China has committed to promoting and signing multilateral tax agreements with other countries in order to achieve common interests.