India and Hong Kong have agreed to a double tax avoidance agreement. Many people would likely assume this is not a noteworthy development for Americans; however, these are the treaties that matter the most.
The U.S. has an extensive tax treaty network, but unless you have had to deal with it directly, you are likely unaware that this is largely irrelevant for U.S. persons. The reason for this is that most treaties contain a provision known as a “savings clause.” The savings clause is language that reserves the right for the U.S. to tax its citizens and residents as if the treaty was not in existence. Translation – treaties have little to no value for U.S. persons. Nevertheless, the savings clauses normally doesn’t render the entire treaty moot, often there are certain provisions which are exempt. These can include the residency tie breaker and other key issues, however, rarely do they include reduced tax rates for common types of income.
On the other hand, most Americans with businesses and investments abroad are operating in multiple countries. This means that treaties such as the new one between Hong Kong and India can prove very important to a global tax plan. In this case, with Hong Kong and India both playing essential roles in many global structures, but for very different reasons, this treaty could be a major development for many Americans.