What is a TAX EXEMPTION METHOD - Double Taxation Avoidance agreements (DTAA) - Explained

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Today we are going to talk and discuss about the double taxation avoidance agreement explained - DTAA - in particular about the tax exemption method, how it works and how to pay less taxes.
DISCLAIMER
Esentaxa channel does not provide personal circumstance tax advice. ⚠️ You are strongly recommended to request a professional advice from a tax advisor or professional accountant before you take any action. 📱The channel only provides an overview of the tax regulations in force at the date of publication

[@LegallyBlue]

Excellent video! I have a Tax Law exam soon, and I didn't quite understand this part. Thanks to your explanation, I now feel a lot more confident. 10/10 video. Liked :)

[@esentaxa]

thanks a lot

[@lorenlinck4345]

Thank you for another interesting video. Can you please offer another video where you apply these concept to a US citizen moving their tax residence to Italy. Both tax WW income. My understanding is that the credit method is not very favorable in this situation because the tax paid in Italy is much greater than that in the USA.
Does the exemption method work between Italy and the USA? Basically can the amount of income taxed generated and taxed in the USA be deducted from the WW income reported Italy?

[@esentaxa]

Hello Loren, Between USA and ITA its works only the tax credit method and unless you are exploiting some favorable Italian tax regimes the Taxes in USA are not due since the Italian ones are higher and they reduce to zero what you should pay to IRS. Of course its a general principle a case by case analysis its always recommended.

[@lorenlinck4345]

@@esentaxa Thank you. The USA makes it tough. I understand that even if I exploit the 7% Italian tax regime, the USA does not recognize that as part of the double tax relief.. Thanks again for your help

[@spaceshipcool4733]

@@lorenlinck4345 Hey Loren, what do you mean with the US makes it tough? Are you saying the 7% paid to Italy won’t count as tax paid in your US return? Do you mind to expand on it? Thanks!

[@lorenlinck4345]

@@spaceshipcool4733 My understanding is that the US, IRS, does not treat the 7% tax regime the same as normal income taxes under the double tax treaty. While you can deduct a normal income tax from your US income tax (no double taxation) that is not true for the "special" regime. Therefore the 7% is incremental to what ever you pay in the US. Again, just what I have been told by credible sources. Love to know if I am mistaken