Meaning
A foundational bilateral treaty clause defines the specific national and local levies subject to the double taxation agreement. Through Treaty Article 2 Covered Taxes, contracting states list the explicit taxes that fall within the scope of the treaty to ensure clarity for international taxpayers. This list prevents double taxation by ensuring that reliefs apply to the named income and property taxes.
The clause also extends the treaty to identical or substantially similar taxes enacted after the date of signature.
Legislative Scope
The list of covered levies under Treaty Article 2 Covered Taxes includes corporate income tax, individual income tax, and certain regional taxes, while excluding indirect taxes such as Value Added Tax. This distinction is critical because foreign enterprises cannot claim treaty benefits for excise taxes or duties paid on imported goods. National authorities periodically update their domestic tax codes, which automatically requires cross-border review to determine if the new taxes are covered.
Regulatory Inclusion
Tax authorities from both states must agree on whether newly introduced national levies are covered under the existing bilateral framework. This ongoing coordination prevents tax disputes between international business entities and the state.
Treaty Benefit
Non-resident enterprises utilize this list to verify which of their domestic tax liabilities can be offset by foreign tax credits in their home jurisdiction. This mechanism supports steady cross-border capital flows.
