Double taxation agreement meaning :

The Double Taxation Agreement (DTA), or agreement for the avoidance of double taxation, is an agreement between two countries aimed at preventing individuals or businesses from being taxed twice on the same income. This tax principle comes into play when the same income is subject to taxation in two different jurisdictions. Its primary objective is to divide the taxation rights between the signatory countries to ensure equality of tax rights and prevent tax evasion.

The Double Taxation Agreement is of particular interest to immigrants with business interests in multiple countries. This may include individuals with dual permanent residency in two DTA-contracting states, companies and groups of exporters with subsidiaries abroad, and employees undertaking temporary assignments overseas.

The Double Taxation Agreement offers significant tax benefits to businesses or individuals engaged in commercial activities in multiple countries:

• Tax exemption : Under this regime, certain types of income or transactions are completely exempt from taxes in one of the contracting states of the agreement. This means that the income in question is not subject to any tax in that country, even if it is taxed in the other country according to local tax laws.
• Reduction of tax rates on respective payments : The DTA also allows individuals or international businesses to benefit from reduced tax rates on certain types of income in the country of residence.

Etymology of Double taxation agreement

Etymologically, the term “double taxation agreement” originates from the combination of the following Latin words :

• “Duplus,” meaning “double” or “twice.”
• “Taxatio,” referring to the action of taxing or imposing.
• “Agreementum,” denoting an agreement or understanding.

Thus, literally, the word “double” indicates the repeated nature of taxation, “taxation” refers to the fiscal action, and “agreement” signifies the contract or understanding between the parties. This expression therefore refers to an agreement aimed at preventing double taxation.