Tax treaties (double taxation agreements or DTAs) are international agreements or conventions concluded with the prime objective of eliminating double taxation by the contracting states.
International double taxation may be loosely defined as the imposition of comparable taxes in two (or more) states on the same taxpayer in respect of the same subject matter and for identical or overlapping periods. The most harmful effects of double taxation are on the exchange of goods and services and on the movement of capital and persons.

Tax treaties are thus primarily contracts between countries regarding the countries’ respective rights to tax the income or capital attributable to corporations or individuals. the object is to prevent the income or capital from attracting tax in both countries if there were no tax treaty.

The drafting of the very provisions of the tax treaties in order to accommodate two different domestic tax systems frequently carries with it unintended opportunities for the mitigation of tax.

Every tax treaty contains the provision (normally in Article 20) that “any income not dealt with in the foregoing provisions of this Convention derived by a resident of a Contracting State who is subject to tax there in respect thereof shall be subjected to tax only in that State”.

Certain otherwise high tax jurisdictions may provide for special legislative opportunities or incentives, which, when coupled with tax treaty provisions, create low tax structures offering comparable benefits with those offered by tax havens or IOFCs (international offshore financial centers).Such situations may result in what is sometimes referred to as treaty shopping in offshore or international tax planning jargon.

It is becoming progressively more difficult to use provisions, which were intended to prevent double taxation, so as to result in either no tax at all or in a significantly reduced tax burden as part of the overall international tax plan.