Double tax agreement

An agreement between two countries that income earned by an individual or company resident in one country shall not be fully taxed by both countries, but that the tax paid by the resident in one country shall be set off against the tax liability in the other country. Double tax agreements are increasingly necessary in our globalised economy dominated by multinationals and expatriates. There are different agreements for individuals and business entities for each country and they can vary significantly.

Australian residents are taxed on all worldwide income, while non-residents are taxed only on Australia sourced income. However, to avoid double taxation of income by two jurisdictions, as well as fiscal evasion, Australia has entered into several double taxation avoidance agreements (DTAs) with other countries. These formal, bilateral agreements stipulate which taxes will be paid to which country. These agreements do not routinely result in additional tax for the individual or company, and usually favour the country of origin, with the country of residency being credited a percentage of the total tax.

DTAs also specify rules by which to resolve dual claims to tax, and provide an avenue for appeal to relevant authorities where a taxpayer considers there has been a violation of the terms of a tax treaty.