The agreement was born out of the OECD`s work on combating harmful tax practices. The lack of effective exchange of information is one of the main criteria for determining harmful tax practices. The aim of the working group was to develop a legal instrument for the effective exchange of information. These tax treaties reconcile many tax laws between two countries. They generally offer mechanisms to eliminate double taxation of businesses and the wage income of people living in one country or having their main income, but who work (temporarily) in another country. In addition, they often involve a reciprocal reduction or elimination of withholding tax on interest, dividends and royalties collected by foreign individuals and companies. 4. In the event of a tax dispute, agreements can provide a two-way consultation mechanism and resolve the issues in dispute. Under the standard double taxation agreement, private sector pensions would only be taxed in your country of residence – in your case, Italy. Income from investments in the form of dividends could be taxable in both Finland and Italy, but in this case Italy would normally allow an exemption from Italian tax because of the tax paid in Finland.
As part of its overall strategy to resolve cross-border tax problems faced by individuals and businesses in the internal market, the Commission is currently looking precisely at potential conflicts between the EC Treaty and the bilateral double taxation agreements that Member States have concluded with each other and with third countries. For example, the double taxation contract with the United Kingdom provides for a period of 183 days during the German fiscal year (corresponding to the calendar year); For example, a UK citizen could work in Germany from 1 September to 31 May (9 months) and then claim to be exempt from German tax. Since agreements to avoid double taxation will ensure the protection of the incomes of certain countries, the signing of the Convention on the Prevention of Double Taxation has four main consequences. Second, the United States authorizes a foreign tax credit that allows for the impact of income tax paid abroad on U.S. income tax debt due to foreign income that is not covered by that exclusion.