If you invest in foreign assets, and are then taxed both at home and abroad, this will, um...make you sad. And governments don’t like sad investor-citizens.
A tax treaty is an agreement between two countries which resolves this potential double-taxation issue. Not only do countries want to make sure foreign investors feel welcome, but also that other types of wealth aren’t double-taxed: income taxes, estate taxes, capital taxes, and wealth taxes.
Tax treaties not only help little investor Joe, but also businesses—the big money movers. They help the countries involved, too, in the same way that free trade (with few tariffs and quotas and such) does.
The OECD, the Organization for Economic Co-operation and Development, developed a tax model for its almost three-dozen wealthy countries, which is referenced by other nations when writing up their tax treaties. In general, the OECD tax treaty model benefits the country with higher capital exports than the one with fewer benefits.
Related or Semi-related Video
Finance: What is Free Trade?12 Views
Finance a la shmoop what is free-trade? alright people think tax-less trade
frictionless trade trade with gallons of wd-40 sloshing around it no duties no [Person spraying WD-40 on trade]
fees no hassles from the man well we want to sell iPhones into China where
there ain't no free trade sorry China and just keeping it real
China treats its own companies as if it's you know them against the world and [China fighting the world in a boxing ring]
China backs its own companies aggressively like against everyone else
including us like you can't get Gmail and a bunch of other American websites
in China without a special VPN or virtual private network to kind of go
around their system and yeah that's government free trade in China there
isn't so when American companies want to sell stuff into China a big fat tax in
one form or another is levied on top of them like a pair of shoes that should
sell for 80 bucks gets a forty dollar tax laid on top of it so that the
distributors have to sell it for a hundred twenty bucks to keep the same
margin they have everywhere else do some people still pay up for those hundred [People walking]
twenty dollar shoes you know their quality American goods well you bet but
in a bake-off of arguably the same well almost identical product where one costs [Two pairs of shoes with different price tags]
50% more well it ends up being tough to compete in that environment right so
that's not free trade so what is free trade? well basically it's a world where
there are no taxes no levies no special fees no needs for local business
incorporation no hidden legal fees no corruption that just kind of you know
happens along the way with product falling off the truck and ending up in [Truck drives by and box falls off]
someone's hands and then getting sold on eBay yeah that happens all the time so
free trade actually deals with the regulation of tariffs ie taxes and
duties on imports and exports. Well, in real life there's no perfectly free
trade, trade is essentially governed by agreements among nations and the most
talked about free trade agreement is NAFTA or the north american free trade
agreement which basically stated that the countries comprising
North America ie Canada Mexico and the U.S would trade freely among themselves
with little to no pain in the butt friction tariffs were eliminated [Person sprays WD-40 on north american tariffs]
progressively with the goal of removing all friction and trading among these
"partners" financial commercial utopia that's what we saw it
and yeah it does not exist in the U.S either by the way we are free ish the
same way marriage is free-ish generally the arguments supporting free trade
revolve around the following first the markets prevail if people want a good [List of arguments for free trade appears]
they can buy at a fair price second if they buy in this free trade umbrella
both nations benefit in theory by having better economic growth and third free
trade is relatively easy to regulate because they're simply not much
government needs to do government can just sit and watch so then you remove
the cost of supporting a whole bunch of bureaucrats who add almost no value to
the economy and often more times than not to add a whole bunch of corruption [Man puts dollar bill over his eyes]
to the process and then fourth yeah don't forget four, when active trade
happens there's essentially a learning that goes on in the form of technology
transfer product innovation and optimization and other forms of
production expertise that you know get shared among countries and that's good
right? so those are the good the good things
about free trade what about the bad? well first the free trade makes the theft of [List of arguments against free trade appear]
intellectual property really easy note that the movie Deadpool made
literally no money from China after making like half a billion dollars in
the U.S yet it was the number one download in China yeah how does that
work well second jobs get out sourced when trade is truly free of course
manufacturers will lean toward companies with cheaper labor and few human rights
to assemble that you know Ford f-150 with the extra shiny bumper and what [Ford F-150 appears]
makes it shiny yeah arsenic etching and stuff that kills
people down the river but we don't worry about them right all right next
third domestic industries in free trade aren't protected if a foreign country
wants to dump their semiconductors in America at a third of the going market
price well if the country behind them is bankrolling that aggressive
act looking at you Taiwan well there's usually little the American company on
its own can do to protect itself from great economic harm.. all right moving on
Four; working conditions aren't monitored so conditions are ripe for human abuses
in all shapes and forms from minimum wage issues to health violations [Smoke bellowing from factory plant]
basically with no recourse and hey check out this picture of all the 40 plus year
olds working in the Indian fireworks factory bringing that snappy amazing
fourth of July production to your backyard you know they're all dead that [Man stood by graveyard]
was the point they're all right fifth in a free trade environment government
simply collect less from taxes and this is a problem because well governments
have lots of things they should be spending our tax dollars on right?
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