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Archive for Tax Treaties

Biden Administration Overriding Tax Treaties. Does This Mean Existing Treaties Are Worthless?

Biden Administration Overriding Tax Treaties

(The above tweet was a response to a recent article in the Financial Post.)

Introduction

This post is a comment on yesterday’s Tax Connections post “Ranking Members Warn Against Bypassing Treaty Process“. As is well known the United States has been hugely supportive of the International Tax Reforms known as “Pillar 1” (granting source country taxing rights to certain profits earned by certain multinationals) and “Pillar 2” (establishing a global minimum tax on the profits of certain multinationals). Apparently 136 of 140 countries have agreed to the two Pillars of international tax reform. The agreement signified a country’s commitment to make the necessary domestic changes to meet its international obligations.

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Tax Treaties: The United States And Canada

Tax Treaty United States/Canada

Quick Summary.  In 1867, the United Kingdom passed a Parliamentary act establishing what is now known as Canada.  Today, Canada, the largest country in the Western Hemisphere, is a federation of ten provinces and three territories.

Following its formation in 1867, Canada’s new government was provided with the power to raise money by taxation.  Moreover, the new government was divided between the federal government and the provincial governments.  Generally, the federal government was tasked with providing railways, roads, bridges, and harbors.  Conversely, the provincial governments were responsible for providing its citizens with education, health, and welfare.

Canada’s federal government did not initiate a formal income tax until World War I.  Due to its involvement in the war and its need for war funds, Canada’s federal government established a corporate tax in 1916.  A year later, the federal government introduced the Income War Tax Act, which added an income tax regime on individuals.  In 1948, the Income War Tax Act was replaced with the Income Tax Act.  Today, the Canada Revenue Agency and various provincial governments administer the federal and other tax laws in Canada.

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A Short Primer On Tax Treaties: Canada Tax Treaties Spotlight

https://deadline.com/feature/movie-productions-postponed-coronavirus-hollywood-films-1202882857/

In addition to the U.S. and foreign statutory rules for the taxation of foreign income of U.S. persons and U.S. income of foreign persons, bilateral income tax treaties limit the amount of income tax that may be imposed by one treaty partner on residents of the other treaty partner. Treaties also contain provisions governing the creditability of taxes imposed by the treaty country in which income was earned in computing the amount of tax owed to the other country by its residents with respect to such income. Treaties further provide procedures under which inconsistent positions taken by the treaty countries with respect to a single item of income or deduction may be mutually resolved by the two countries.

The preferred tax treaty policies of the United States have been expressed from time to time in model treaties and agreements. The Organization for Economic Cooperation and Development (the “OECD”) also has published model tax treaties. In addition, the United Nations has published a model treaty for use between developed and developing countries. The Treasury Department, which together with the State Department is responsible for negotiating tax treaties. The OECD has published a model income tax treaty (“the OECD model”). The United Nations has also published a model income tax treaty (“the U.N. model”).

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A Short Primer On Tax Treaties

A Short Primer On Tax Treaties

In addition to the U.S. and foreign statutory rules for the taxation of foreign income of U.S. persons and U.S. income of foreign persons, bilateral income tax treaties limit the amount of income tax that may be imposed by one treaty partner on residents of the other treaty partner. Treaties also contain provisions governing the creditability of taxes imposed by the treaty country in which income was earned in computing the amount of tax owed to the other country by its residents with respect to such income. Treaties further provide procedures under which inconsistent positions taken by the treaty countries with respect to a single item of income or deduction may be mutually resolved by the two countries.

The preferred tax treaty policies of the United States have been expressed from time to time in model treaties and agreements. The Organization for Economic Cooperation and Development (the “OECD”) also has published model tax treaties. In addition, the United Nations has published a model treaty for use between developed and developing countries. The Treasury Department, which together with the State Department is responsible for negotiating tax treaties. The OECD has published a model income tax treaty (“the OECD model”). The United Nations has also published a model income tax treaty (“the U.N. model”).

Read more