<P> In the European Union, member states have concluded a multilateral agreement on information exchange . This means that they will each report (to their counterparts in each other jurisdiction) a list of those people who have claimed exemption from local taxation on grounds of not being a resident of the state where the income arises . These people should have declared that foreign income in their own country of residence, so any difference suggests tax evasion . </P> <P> (For a transition period, some states have a separate arrangement . They may offer each non-resident account holder the choice of taxation arrangements: either (a) disclosure of information as above, or (b) deduction of local tax on savings interest at source as is the case for residents). </P> <P> A recent study by BusinessEurope confirms that double taxation remains a problem for European MNEs and an obstacle for cross border trade and investments . In particular, the problematic areas are limitation in interest deductibility, foreign tax credits, permanent establishment issues and diverging qualifications or interpretations . Germany and Italy have been identified as the Member States in which most double taxation cases have occurred . </P> <P> Cyprus has completed over 45 Double Taxation Treaties up to today and is also in negotiations with many countries for signing Treaties with them . The main purpose of these treaties is the avoidance of double taxation on income earned in any of these countries . Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country and as a result the tax payer pays no more than the higher of the two rates . Further, some treaties provide for tax sparing credits whereby the tax credit allowed is not only with respect to tax actually paid in the other treaty country but also from tax which would have been otherwise payable had it not been for incentive measures in that other country which result in exemption or reduction of tax . </P>

Types of income exempt from double taxation relief