For example, European Union (EU) countries are parties to a multilateral agreement with respect to value added taxes under auspices of the EU, while a joint treaty on mutual administrative assistance of the Council of Europe and the Organisation for Economic Co-operation and Development (OECD) is open to all countries.
[11] Generally, individuals are considered resident under a tax treaty and subject to taxation where they maintain their primary place of abode.
[13] The United States includes citizens and green card holders, wherever living, as subject to taxation, and therefore as residents for tax treaty purposes.
[19] The OECD has moved away from place of effective management to a case-by-case resolution using Mutual Agreement Procedure (MAP) for determining conflicts of dual residency.
[21] Many treaties, however, address certain types of business profits (such as directors' fees or income from the activities of athletes and entertainers) separately.
Specific exceptions from the definition of PE are also provided, such as a site where only preliminary or ancillary activities (such as warehousing of inventory, purchasing of goods, or collection of information) are conducted.
[24] Many treaties explicitly provide a longer threshold, commonly one year or more, for which a construction site must exist before it gives rise to a permanent establishment.
[26] Thus, a resident of one country cannot avoid being treated as having a PE by acting through a dependent agent rather than conducting its business directly.
Many treaties provide for other exemptions from taxation that one or both countries as considered relevant under their governmental or economic system.
Most treaties permit the estate or donor to claim certain deductions, exemptions, or credits in calculating the tax that might not otherwise be allowed to non-domiciliaries.
[34] Nearly all tax treaties provide a specific mechanism for eliminating it, but the risk of double taxation is still potentially present.
[37] Most tax treaties include, at a minimum, a requirement that the countries exchange of information needed to foster enforcement.
The working group consisted of representatives from OECD Member countries as well as delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino.
The lack of effective exchange of information is one of the key criteria in determining harmful tax practices.
The mandate of the working group was to develop a legal instrument that could be used to establish effective exchange of information.
The agreement represents the standard of effective exchange of information for the purposes of the OECD's initiative on harmful tax practices.
[39] Generally, the government agency responsible for conducting dispute resolution procedures under the treaty is referred to as the competent authority of the country.
With respect to other entities, the provisions tend to deny benefits where an entity seeking benefits is not sufficiently owned by residents of one of the treaty countries (or, in the case of treaties with members of a unified economic bloc such as the European Union or NAFTA, by "equivalent beneficiaries" in the same group of countries).
[41] Even where entities are not owned by qualified residents, however, benefits are often available for income earned from the active conduct of a trade or business.