Double Taxation Avoidance Agreements (DTAA) 避免双重征税协议

Double Taxation Avoidance Agreements (DTAA) 避免双重征税协议

The Double Tax Avoidance Agreements (DTAA) is essentially bilateral agreements entered into between two countries, in our case, between India and another foreign state. The basic objective is to avoid, taxation of income in both the countries (i.e. Double taxation of same income) and to promote and foster economic trade and investment between the two countries. The advantages of DTAA are as under.

The advantage of DTAA are as under,

a.Lower Withholding Taxes (Tax Deduction at Source)

plete Exemption of Income from Taxes

c.Underlying Tax Credits

d.Tax Sparing Credits

The Provisions of DTAA override the general provisions of taxing statue of a particular

country. It is now well settled that in India the provisions of the DTAA override the

provisions of the domestic statute. Moreover, with the insertion of Sec.90 (2) in the

Indian Income Tax Act, it is clear that assesses has an option of choosing to be governed

either by the provisions of particular DTAA or the provisions of the Income Tax Act,

whichever are more beneficial.

The Non Resident can certainly take the benefit of the provisions of DTAA entered into

between India and the country, in which he resides, more particularly in respect of

Interest Income from NRO account, Government securities, Loans, Fixed Deposits with

Companies and dividends etc. This is explained below: -

For the Assessment Year 2008-2009,

Withholding Tax Rate (TDS) under the Indian Income Tax for Interest Income - 33.99%

whereas,

Rate of Tax prescribed in the DTAA with the country where Non Resident resides e.g.

Singapore - 15%

Therefore, chargeable rate will be 15 % (Lower of the Two)

Every Non Resident should choose lower of the tax rate prescribed in DTAA with the

country where he resides and the tax rate prescribed under the Indian tax laws.

Double taxation is the systematic imposition of two or more taxes on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country. The double liability is often mitigated by tax treaties between countries.

The term 'double taxation' is additionally used, particularly in the USA, to refer to the fact that corporate profits are taxed and the shareholders of the corporation are (usually) subject to further personal taxation when they receive dividends or distributions of those profits.

International double taxation agreements

European Union savings taxation

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 savers who have claimed exemption from local taxation on grounds of not being a resident of the state where the income arises. These savers should have declared that foreign income in their own country of residence, so any difference suggests tax evasion.

(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).

Cyprus double tax treaties

Cyprus has concluded 34 double tax treaties which apply to 40 countries. 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.

German taxation avoidance

If a foreign citizen is in Germany for less than a relevant 183-day period (approximately six months) and is tax resident (i.e., and paying taxes on his or her salary and benefits) elsewhere, then it may be possible to claim tax relief under a particular Double Tax Treaty. The relevant 183 day period is either 183 days in a calendar year or in any period of 12 months, depending upon the particular treaty involved.