What is the main purpose of tax treaties in international taxation?

The main purpose of tax treaties in international taxation is to prevent double taxation. Tax treaties are agreements between two or more countries that outline how taxing rights are allocated. They aim to ensure that individuals and corporations do not pay tax on the same income in more than one jurisdiction, which could otherwise lead to significant financial burdens for taxpayers engaged in cross-border activities.

By specifying which country has taxing rights over various types of income, such as dividends, interest, and royalties, tax treaties make it easier for taxpayers to navigate complex international tax obligations. This can enhance cross-border trade and investment by making the tax environment more predictable and fair.

Through provisions like reduced withholding tax rates and exemptions, tax treaties also promote international economic activity and cooperation, ultimately supporting global economic growth. The other choices do not capture the fundamental purpose of tax treaties, which is centered around mitigating the issue of double taxation rather than altering domestic tax rates, simplifying regulations broadly, or restricting investment.