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.
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Econ: What are Gains From Trade?4 Views
And finance Allah shmoop what our gains from trade Ah
the nineteen fifties hoop skirts do up big cars malt
shops Elvis in a near world economic domination by the
U S What was that last one Yeah well during
World War two pretty much all the world bombed itself
back into the Stone Age Well except for the U
S Which well nobody could reach with any bombers except
for Hawaii And well that was just that one time
you know Well besides just not getting bombed the U
S Had spent the war ramping up manufacturing production I
am making tanks and guns and other fun stuff So
after the war the US had all this capacity Teo
you know make stuff And in the rest of the
world well they had all this need for that stuff
and not much production capacity and well no capital and
well pretty much no buildings Yeah well time for some
international trade So the U S wouldn't make products and
send them around the world And if places couldn't afford
to buy those products well we just lend them money
and they become bankers to the world while we're at
it And then Well then they'd be kind of forced
to buy stuff with us for a long long time
till they get pay off those debts and they never
did So they keep buying Who's good time for us
business especially manufacturing You remember the guys the man in
the gray flannel suit That novel Yeah they had fedoras
and well they basically ran the world So that's an
obvious example of the gains from trade that we made
bombed out Europe benefited because it got much needed supplies
And the US benefited because well people had jobs and
could afford Jello with their TV dinners What when parties
are allowed to voluntarily trade with each other with low
friction while things usually get better for both sides That's
called gains from trade in the friction yet taxes and
transaction costs We don't want those So let's say you
have an island with two countries Yola India and Cool
Ooh Vania All right well the people of your land
eah are masters of the string arts and they could
make high quality Yo yo's fast inefficiently Meanwhile the people
of Hu Lu Vania have a knack for making circular
things like they make great loops Well if yo landers
have to make their own hula hoops It takes them
a long time Also takes the time away from their
true love which is making yo yo's So in a
typical week the old Landers can make a thousand yo
goes and five hundred hoops splitting their time evenly But
on the other side of the island the hula vain
Ian's can make three hundred yo goes and eight hundred
hula hoops splitting their time evenly between the two different
numbers there Yeah but what if they traded That is
what if the old landers on Lee made yo yo's
and the Who Louvain Ian's only made who loops Well
then the two countries could just trade with each other
and optimize their production efforts Right We'll dedicating their time
completely to making yo yo's The old landers can make
two thousand Yo yo's in that same time period and
full time Hula hoop making for the hula vain Ian's
while that leads to sixteen hundred loops So let's compare
that dynamic to the previous output Well before the old
Landers made a thousand yo goes and the hula vain
Ian's made three hundred yo yos and thirteen hundred yellow's
total And before the yield Landers made five hundred Who
loops And the Hula Vain Ian's made eight hundred Who
loops And that's thirteen hundred hula hoops total But after
the two gods started trading with each other well we've
got two thousand total Yo yo's and sixteen hundred Hula
hoops Production is generally up all things to the two
sides getting too focused on producing their specialty and note
There's no taxes and commissions and other stuff to cloud
the numbers here for you like there is in real
life Well when countries specialized they're able to become more
efficient They end up making their product cheaper by getting
better at making it Then other countries could write like
Think about how awesome watches are from Switzerland They've had
like four hundred years to perfect the art kind of
like semi conductors in Silicon Valley Well it all depends
on the country's conditions like countries by the ocean Well
produce or gather seafood right countries with good farmland produce
awesome corn and greens and stuff Countries with mountains produce
quell postcards While these conditions specialization a natural advantage lead
to a concept called comparative advantage Each country does what
it does best costs for everybody go down well Countries
end up specialising in particular production like Yolanda and Lulu
Vania Rather than creating a little of everything they specialize
and they make a surplus of the things they're good
at making Well They then export these surpluses to the
rest of the world With the money they get from
those exports they could afford to import other products right
The stuff they didn't produce themselves well These imports are
relatively cheap because they're being produced in countries that use
their comparative advantage to produce them at a lower cost
than they could generally be produced elsewhere Well everyone ends
up with Mohr of everything And as you know Mohr
is better We'll think about the good people of your
clammy and hula Vania Obviously they can't eat yo yo's
and hula hoops but their lousy farmers and their terrible
fishermen All they want to do is make Yo yo's
and or hula Hoop right So gains from trade allow
them to just do that The two thousand year Agos
and the sixteen hundred Hula hoops the two of them
make can get shipped to other countries They can use
the cash earned to bring in food from the U
S and cars from Japan and TVs from Korea You
know anything they want Well those air the short term
gains from trade Basically it's all about making money You're
making the most amount of money that you can buy
specializing But there are some long term gains from trade
to gains that can't necessarily be measured in bean counting
or tracking nickels and dimes Kuwait is a small country
in the Middle East The country doesn't have a lot
to do with the United States While circa nineteen ninety
most Americans had no idea that Kuwait even existed But
Kuwait produced a lot of oil oil Americans used Kuwait
had a strong trade relationship with us in oil well
In nineteen ninety Kuwait was invaded by the kindly loving
generals from Iraq Well rather than just shrug its shoulders
the U S launched its biggest military effort since Vietnam
in order to kick Iraq out and restore Kuwait as
a sovereign nation We'll compare that to what happened Teo
George Shit Different Georgia In two thousand eight Russia invaded
the country Did the U S Mount a major military
effort to save the tiny nation from a Russian invasion
No why Well Georgia's major exports included hazelnuts and wine
Yeah doesn't quite get the martial spirit pumping quite like
crude oil does because Kuwait had a strong trading relationship
with the US providing a vital commodity that we all
care about while the U S Was willing to step
in and protect Kuwait and risk American lives when it
was invaded While building trade relationships can be like buying
a friend in the doggy dog world of international relationships
if Kuwait had just tried to keep itself and not
sell oil to the U S well it wouldn't have
been able to talk us into protecting it in its
big time of need there But let's be really It's
mostly about money and the stuff money can buy gains
from trade lead all sorts of material benefits Think about
your own life because well there are farmers out there
who grow food and raise animals And because there are
manufacturers out there who assemble hot pockets and because you're
able specialize while you have time to get really good
at playing fortnight So these guys they're good at farming
and making greasy handheld food products You get great at
video games Nice trade The farmer in the worker can
then watch your twitch channel when they get home Yeah
everyone benefits eventually That's what happened in the post nineteen
fifties America Instead of making everything other countries finally rebuilt
themselves after well their destruction in World War two So
the U S could import better cheaper cars from Japan
and Korea and elsewhere Cheaper electronics from Taiwan and China
and other places Cheaper clothes from places like the Philippines
Latin America cheaper customer service Call talkers from India Better
music from Britain better actors from Australia So next time
you watch Hugh Jackman in a movie that has Beatle
songs on the soundtrack while enjoying it on a big
screen TV from Korea sitting on a couch made in
Mexico wearing a full length body snugly made in the 00:07:56.298 --> [endTime] Philippines Well you can think games from trade here
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