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Tax Treaty Questions

A tax treaty may cover many different kinds of taxes in order to mitigate the effects of double taxation (Double Tax Avoidance Agreement). Tax treaties tend to reduce taxes of one treaty country for residents of the other treaty country in order to reduce double taxation of income. Typically Very few tax treaties are exactly alike. Below are some of the most commonly asked questions about Tax Treaties answered by the Experts.

How would a student returning from the United States (US) to their home country file their taxes?

In some cases countries have tax treaties with the U.S., therefore they would file a resident or non-resident return in the U.S. and invoke tax treaty protections in order to be protected from double taxes in their own country. Another factor would depend on how long they were in the U.S. and the type of visa that they were using. Also their country may tax worldwide income, so they would also file in their home country in this case.

If a person lives, works, and pays taxes in the U.S. and also has income from a company in Mexico, which is deposited in a Mexican bank, and has Mexican taxes taken out of it. Would that person have to pay U.S. taxes on it if it is brought into the U.S.?

In most cases since the U.S. and Mexico have a tax treaty, and since that person has already paid taxes in Mexico they will not be required to pay U.S. taxes as this would be double taxation. However they will still have to report the income, but should not have to pay taxes on this income because it has already been taxed abroad.

Would a U.S. citizen living in Italy be required to pay taxes on an Individual Retirement Account (IRA) coming from the U.S. military?

Most generally as long as the taxes are paid in one country on the money, then that person would not usually be required to pay taxes in the other country, as long as both countries have a tax treaty preventing double taxation.

If a person had a rental property given to them abroad, would they be required to pay property taxes and be taxed on income generated by the rent in both countries?

Typically U.S. taxes would have to be paid as well, however the IRS will give credit for any taxes that the host country levels on the property and the income. The amount would depend on the amount received, the Tax Treaty with the host country, and its own tax laws.

Are tax collectors from abroad authorized to access U.S. bank accounts?

In most cases a tax collector would not be entitled access, However if the countries have a tax treaty with each other the country in question could ask the Department of the Treasury to investigate, then there would be the possibility that the Internal Revenue Service might subpoena the bank records that are under scrutiny.

Tax treaties generally allow residents of foreign countries to be taxed at a reduced rate, or even to be exempt from U.S. taxes on certain items or income received from sources within the United States. Since these treaties vary from country to country they always bring up more questions than answers. However to keep informed of the rules and regulations of the country that a person resides is always the best policy. And almost always these rules and regulations will bring more questions, questions that need answering by the Experts.
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