VI.   Double Tax Treaties

A tax treaty is a bilateral agreement between two contracting countries in which each agrees to modify its own tax laws to achieve reciprocal benefits. It is generally intended to benefit the tax collecting efforts of the signatories, not necessarily the taxpayers. Keeping this fact foremost, tax treaties generally do take precedence over the Internal Revenue Code, though there are instances in which Congress mandates that Code provisions will take precedence over existing treaties.

Most treaties contain certain common characteristics. These are:

•Prevention of tax evasion.
•Treaties and other agreements provide for exchange of information.
•Avoidance of double taxation or exempting certain classes of income or other tax bases from taxation.
•Earned income exempt under certain conditions.
•Exempting from estate tax property with a certain situs.
•Exempting business income from host country tax unless activities meet substantive requirements.
•Reducing the tax base by modifying source of income rules. Source of income rules generally follow US tax law, but there are many exceptions. Reducing the tax base by modifying source of income rules. Source of income rules generally follow US tax.
•Grievance procedures.
•"Competent authority" consultations.
•Lower withholding rates are generally provided for independent personal service, dependent personal services, interest, royalties and dividends paid to the mother company.

The tax treaties can have traps. To start with, they are written in their own special language "gobbledygook taxese," secondly, the document must be taken as a whole, not "cherry picked." Seemingly, the US/Czech treaty is very beneficial to US citizens living in the Czech Republic.

Unfortunately, a little article states that "A Contracting State may tax its residents and its citizens, including former citizens, according to the laws of that State as if the Convention had not come into effect."

Persons who are present in the Czech Republic more than 182 days in a year, are probably subject to Czech worldwide income.