What Are Tax Treaties?

Tax Treaties pic

Tax Treaties
Image: irs.gov

The co-director of the Ernst & Young Americas Tax Center and National Tax Department, Michael Mundaca has served as a representative of the United States in a number of international forums, which includes the Organisation for Economic Co-operation and Development. As such, Michael Mundaca has been involved in negotiating tax treaties, as well as other international agreements between the United States and other countries.

Tax treaties are bilateral agreements made by two countries to resolve various tax-related issues. For instance, the United States possesses income tax treaties with many foreign countries. Under these tax treaties, foreign residents pay reduced tax rates, and they are exempt from taxes on certain income obtained from U.S. sources. Reduced rates and exemptions vary from one country to another and among particular items of income.

The policy on tax withholding is among the most important aspects of a tax treaty. Through these treaties, double taxation and tax evasion are prevented and ideally, eliminated. They also help to ensure that foreign workers are taxed fairly and that governments maintain healthy relationships with each other.