A tax treaty is an agreement between two countries that aims to prevent double taxation of income earned by individuals and businesses in both nations. These treaties typically outline which country has the right to tax specific types of income, such as wages, dividends, and royalties, ensuring that taxpayers are not taxed twice on the same income. Tax treaties also promote economic cooperation and investment between countries by providing clarity on tax obligations. They often include provisions for information exchange between tax authorities, helping to combat tax evasion and ensuring compliance with tax laws in both countries.