How do Double Taxation Treaties help avoid double taxation?

Double Taxation Treaties (DTTs) are agreements made between two countries, or countries and territories, to help reduce the amount of taxes paid by taxpayers in both jurisdictions. The main purpose of DTTs is to help avoid double taxation, which occurs when income or capital gains earned in one country are taxed in both countries. DTTs allow taxpayers to declare their income and capital gains in one country only, eliminating the double taxation that would otherwise be imposed. DTTs help to ensure that taxpayers do not pay double tax on the same income and capital gains. Typically, DTTs do this by defining the rules regarding which country can tax income earned and capital gains realized in both countries. Furthermore, many DTTs also contain provisions that set out the tax rates that apply to international profits and capital gains, and allocate the taxing rights between the two countries. By helping to avoid double taxation, DTTs help to ensure that businesses and individuals have the ability to operate and invest with the assurance that their foreign income and capital gains will not be taxed twice. DTTs also promote economic growth and development, as double taxation can generally have a negative effect on both investment and trade between countries. In Indiana, there are currently seven DTTs that have been signed by the United States with different countries. The United States also has several unilateral tax treaties with individual countries. These agreements help taxpayers in Indiana reduce or eliminate double taxation when conducting international transactions.

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How do Double Taxation Treaties help avoid double taxation?

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