Tax treaties typically allocate taxing rights between the two countries involved. This allocation is based on the nature of the income, such as dividends, interest, royalties, business profits, and capital gains. The treaties often include provisions to:
Determine the resident status of individuals and entities. Define the terms "permanent establishment" to identify taxable presence in a country. Limit the tax rates on certain types of income, like dividends and interest. Provide mechanisms for resolving tax disputes and avoiding double taxation.