The main goals of tax treaties:

1. Avoidance of double taxation.
2. Prevention of fiscal evasion.
3. Distribution of the taxing rights between the Contracting States.
4. Prevention of discrimination in tax matters.

The mains tasks of tax treaties:

  • To provide a stable taxation regime to the investors of each Contracting State in the other Contracting State, namely by including the following provisions thereof:  the provisions governing the taxation of revenue gained from the business activity in the other Contracting State and from the capital existent in that State; the precise provisions concerning passive income - dividends, interest, commission fee, royalties, capital taxation. Moreover, the maximum tax rate is set to be levied on those items of income and capital in other Contracting State. 
  • To create legal basis for direct co-operation of states` Tax Administrations in order to eliminate the possibility to avoid the tax payments. In order to achieve this result an article is included in the tax treaties, which imposes an obligation  on each state's Tax Administration to provide information to the other Contracting State's Tax Administration on the following: the business partners of the residents of the other Contracting State and the income of the residents of the other Contracting State derived in the first State.

 The necessity of tax treaties:

  • If any tax treaty is not signed between the states then the investors of one state are taxed in the other state on the basis of the other state's national legislative acts. The other state may change not only the tax rates, but also the order of calculation of the taxable income. In this situation the invariability of the taxation rules is not guaranteed in the long time period, thereby it is impossible to plan precisely the investments, their recoupment and profit. Thus, the stability of taxation of one state's investors income gained in the other state or the capital situated therein is not guaranteed. In the situation when the taxation matters in both states  are solved only according to the national legislative acts, of the issue on double taxation avoidance is not solved. The situation above-mentioned may negatively affect one state’s residents' investments in the other state. 
  • If any tax treaty is not signed between the states, then one state’s Tax administration is not obliged to answer the other state’s Tax administration’s request for the information about the business partners of the taxpayers of the other state in the first state and about the items of income gained by the taxpayers of the other state in the first state. In the situation when the other state does not have the information above-mentioned at its disposal it is difficult for it to tax its residents for their income gained abroad and also it is problematic to apply some special national tax provisions, for example terms concerning the adjustment of taxable income on the basis of prices applicable in transactions between unrelated persons.