How do avoidance of double taxation agreements work?

Double taxation agreements (DTAs) are agreements between two countries to help avoid the double taxation of income. These agreements help businesses and individuals avoid being taxed twice on the same source of income. In the state of Texas, the US government has negotiated DTAs with more than 60 countries, including Mexico and Canada. When a business earns income in one country, it can be taxed by that country. With a DTA in place, that same income may not be taxed in the other country. For instance, a company based in Texas may have operations in Mexico. The company will pay taxes to the Mexican government for its income in Mexico, and the DTA will allow the company to avoid being taxed for the same income by the US. Additionally, DTAs can reduce the amount of taxes a business needs to pay overall. For instance, a Texas-based company operating in Mexico may not have to pay taxes to the US for Mexican income since the DTA would reduce the US tax rate. DTAs do not eliminate taxes completely as some taxes such as estate and gift taxes can still be levied. However, DTAs do provide businesses with a way to avoid double taxation and save money. This is why it is important for any business operating in multiple countries to research and understand the DTAs that are in place in order to take full advantage of the savings.

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How do avoidance of double taxation agreements work?

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