How does the international tax treaty work?
The international tax treaty works by determining the tax residence of taxpayers, which is essential since each country has its own concept of tax residence.
Generally, when an individual is considered to be a tax resident of a country, he is subject to unlimited tax liability and is therefore taxable on his worldwide income. That is, on income from sources outside that country.
On the other hand, non-residents of a country are taxable only on income arising in that country. International tax treaties generally include a series of articles that will distribute the right to tax among the signatory countries.
For example, in income tax treaties, each article will deal with a particular type of income (wages, real estate income, dividends …) and will determine for each of them which of the country concerned is entitled to tax.
Some income will be taxable only in the country of residence of the recipient of the income (this is often the case with private retirement pensions or capital gains from the sale of securities …), while others will be taxable, exclusively or not, in the country of their source (such as wages or income from immovable property).
However, reference must always be made to another article, which relates to the elimination of double taxation, and which therefore complements the previous articles.