What is a tax treaty?

What are the benefits of signing a tax treaty form? Do you still get refunds during tax time?

2 Answers

  • Anonymous
    1 decade ago
    Favorite Answer

    A tax treaty is an agremeent "for the prevention of double taxation and fiscal evasion" between two sovereigns. It overrides tax law, and often gives real benefits to taxpayers who have moved from one country to another or who have income from a country other than where they live.

    If an individual or a company (foreign or American) makes an agreement with the IRS about taxes it's not called a "treaty" but a "closing agreement", even if concerns future taxes. A unilateral IRS determination at the request of the taxpayer is often in the form of a Revenue Ruling or a Determination Letter.

    US taxpayers are required to notify the IRS when they rely on a tax treaty for a benefit not otherwise provided by law. See this explanation: http://www.irs.gov/businesses/small/international/...

    Also, many treaties provide for an election to be made: thus if you work in Canada and pay into an RRSP (like an IRA) you must elect to have that fund treatied like an IRA, taxed when received; otherwise you would pay tax to the IRS when you pay into it (on the money you earned) and to the Canadian tax authorities when you took money out.

    A very important treaty benefit concerns estates of deceased people that are subject to tax both in the USA and Canada. Canada doesn't have any estate tax, just a capital gains tax on "deemed sale" at death -- accumulated gains. For ten years after Canada changed its law that way, it charged capital gains tax and the IRS charged estate tax on the same money. Then a new Protocol 3 of tthe Canada-US tax treaty changed the rules to provide a credit for one against the other.

    Source(s): http://www.irs.gov/businesses/international/articl... (list of US tax treaties) http://www.irs.gov/pub/irs-pdf/p901.pdf (PDF, IRS brochure on tax treaties)
  • ?
    Lv 6
    1 decade ago

    A tax treaty is an agreement between nations and has nothing to do with individual income taxes

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