The international conventions against double taxation are a tool of international policy necessary to avoid the phenomenon that the same assumption is subject twice to taxation in two different States.

The conventions in fact regulate the tax relations between the subjects that operate in the signatory states of the convention and that are therefore linked to them. This tool is intended to avoid the taxation of the income both in the country where it was produced and in the country of residence of the subject who produced it. Like all international conventions, those against double taxation also have a higher value than national law and, in cases where it is provided for, prevail over it, so that the tax judge will be required to disapply domestic legislation to apply the provisions of the convention.

Conventions against double taxation are very important in some respects:

• The identification of the tax residence of natural persons and corporate entities;
• The criteria of territoriality of foreign source income received by a subject resident in one of the two contracting states;
• The methods used for the elimination of the double legal/economic”>imposition (mainly tax exemption or credit method);
• The possibility of establishing international rulings for the resolution of specific tax problems that do not find an immediate solution.

Conventions to avoid double taxation make it possible to eliminate double taxation of natural and legal persons who have links with foreign countries in the context of income and wealth taxes. They are therefore an important element in the promotion of international economic exchange.

Double taxation is given when the same income elements or parts of assets of the same taxpayer are taxed simultaneously by two countries. The provisions of a convention to avoid double taxation are mainly intended to avoid double taxation by giving partner States the right of taxation for the individual types of income and assets. However, these provisions are simply limited to the right of taxation of the partner States, while the basis of taxation is governed by the domestic law of the Contracting States.

The list of persons who can benefit from a convention to avoid double taxation concerns for example:

• People who have a permanent residence in two States at the same time;
• Exporting companies and groups of companies with affiliated foreign companies;
• People who exercise a gainful activity with temporary employment abroad.

Conventions to avoid double taxation also play a fundamental role for any type of investment abroad because they eliminate double taxation of profits and revenues from such investments. In general, the conventions to avoid double taxation also include certain prohibitions of discrimination, a dispute settlement mechanism and a clause on the exchange of information on request.

The BEPS Project (“Base erosion and profit shifting”) contains recommendations that require the adaptation of conventions to avoid existing double taxation. The Multilateral Convention for the Implementation of Measures Relating to Tax Conventions Aimed at Preventing the Erosion of the Tax Base and the Transfer of Profits (BEPS Convention) allows the agreements to be adapted to avoid existing double taxation to the solutions defined by the BEPS project.

The Government of the Republic of San Marino and the Government of the Italian Republic have signed a specific agreement: Read the Italian Convention San Marino