DOUBLE TAXATION AVOIDANCE AGREEMENTS - INTRODUCTION.pptx

tax double taxation

1. DOUBLE TAXATION AVOIDANCE AGREEMENTS Introduction

2. DOUBLE TAXATION – MEANING & SIGNIFICANCE Double taxation occurs when an individual/business entity is required to pay two or more taxes for the same income, asset, or financial transaction in different countries. In the era of globalisation, cross-border transactions have become inevitable. Cross- border transactions leads to many tax implications, one of which being double taxation. When a cross-border transaction takes place, there are two countries seeking to exercise their taxing right, one being the source country and the other being the residence country. If both of them are allowed to exercise their taxing rights, it would amount to double taxation and hinder the process of globalisation. To avoid which, the countries seeks to enter into Double Taxation Avoidance Agreements (DTAAs) with one another.

3. DOUBLE TAXATION AVOIDANCE AGREEMENTS DTAAs are entered with the following objectives: 1 . To prevent tax avoidance, evasion, grant relief , avail tax credits  2. To prevent discrimination between taxpayer 3. To improve the co-operation between two different taxing authorities  4 . To attract foreign investments by providing relief from dual taxation. 5 . To provide clarity on how certain cross-border transactions will be taxed. 6 . To lay down ‘Specific Rules’ for division of Revenue between two countries.

4. KINDS OF DTAA Comprehensive DTAAs: They are very exhaustive in nature and lays down details of how income under various heads shall be dealt. Examples: India’s DTAA with Australia, Mauritius, Singapore, etc. (96) Limited DTAAs: They are entered into for the purpose of avoiding double taxation relating to certain specified areas like income derived from shipping, aircrafts, cargo,etc .,. Examples: India’d DTAA with Pakistan, Maldives, Afghanistan, etc. (8)

5. MODELS OF DTAA Basically, there are two important Models of DTAA, the OECD Model and the UN Model. The OECD Model Tax Convention is b ased on Residence principle. The UN Model Double Taxation Convention is b ased on combination of Residence and Source with more emphasis on the source principle.

6. IMPORTANCE OF DTAA Business can operate without the fear of double taxation. (granting of relief from double taxation) It provides for determination of residential status of an individual. Clearly determines the taxing rights of the jurisdictions involved. Provides the taxpayer/investor with certainty of tax liabilities. Exchange of information between countries to prevent avoidance/evasion.

7. MISUES/ABUSE OF DTAA Treaty shopping