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)

b.

Complete 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.