Double taxation

double taxation , double taxation relief , types of DTAAs , Methods of Relief , some practical issues , conclusion.

1. Taxation of the same income of the person in two different countries. Such a situation arise due to the countries following different rules for income taxation. Double Taxation

2. Globally there are two rules of income Taxation Source of Income Residential Rule

3. Source of income:- The income is taxed in the country where the source of such income exist i.e. where the business establishment is situated, where the assets/property is located. Whether the income earner is a resident in that country or not.

4. Residential rule:- The income is taxed on the basis of the residential status of a person in that country. Such residential status is determined on various basis such as Place of residence Nationality Control & management of affairs of business Place of incorporation of business

5. Avoidance of double taxation/ double taxation Relief

6. Bilateral Relief Under bilateral relief , the government of two countries enter into double taxation avoidance agreement(DTAAs) to provide relief against such double taxation. These double taxation avoidance agreement are also known as “ tax treaties ”

7. Types of DTAAs Comprehensive DTAAs are those which cover almost all the income covered by any model convention. Many a time a treaty covers- wealth Tax Gift Tax Limited DTAAs are those which are limited to certain type of income only.

8. Why double taxation avoidance agreement are necessary:- free flow of international trade and investment. Protection against double taxation. Mutual exchange of information. It’s legal

9. Methods of Relief

10. Methods of relief under DTAAs sec(90)

11. Unilateral Relief Some countries are not in the position to enter into such agreement with all the countries. Hence often the country of the residence provide some tax relief to its resident persons in respect of their foreign taxed income.

12. Normal tax provision of unilateral relief:- Eligible person:- only a resident person is eligible to claim unilateral relief. Conditions:- the income is taxable in India as well as foreign country because there is no agreement between these countries.

13. Some practical issue:- Dividend distribution tax – no credit of there is no underlying tax credit. Timing and rules of tax filling in both countries. By sharing profits through legal planning into these subsidiaries.

14. Conclusion To conclude, we can say that the instrument of taxation is of great significance on increasing the level of economic activity and reducing the income inequalities and help in promoting economic growth .those who are mitigating to other countries to earn a living have to pay taxes in their country of residence as per prevalent tax laws of the country.