Double Taxation Avoidance Agreement Definition

2. Strengthening tax security, reducing the risk of cross-border taxation The first step is to determine whether the subject falls within the personal scope of Article 1, i.e. “persons residing in one or both contracting states.” This may include confirmation that the subject is a “person” within the meaning of section 3, paragraph 1, point a); it is to confirm that the subject is established in a contracting state in accordance with Article 4, paragraph 1. However, given India`s narrow tax base, it cannot afford a tax system that allows large fish to completely bypass the tax system, citing a DBAA. Hence the continuation of the initiative to fill the gaps in these agreements. The UN model gives more weight to the source principle than to the principle of residence in the OECD model. In conjunction with the principle of withholding tax, the article of the convention model assumes that: (a) the taxation of foreign capital income would take into account expenditures attributable to income income, so that these incomes would be taxed netly, (b) that the tax would not be high enough to discourage investment and (c) that it is the adequacy of revenue sharing with the country. which provides the capital. In addition, the UN Model Convention contains the idea that it would be appropriate for the country of residence to extend a double taxation exemption measure through tax credits or foreign tax exemptions, as in the OECD model convention. The favourable tax treatment of capital gains under certain DBAAs, such as Mauritius, has encouraged a large number of foreign investments in India.

Mauritius accounted for USD 93.65 billion between April 2000 and December 2015, one third of total FDI flows to India. It has also remained a preferred route for foreign portfolio investors. But the problem is that DBAAs can encourage legitimate investors to channel investments through low-tax systems to avoid taxation. The result is tax lines for the country. The Double Tax Evasion Agreement (DBAA) is essentially a bilateral agreement between two countries. The main objective was to promote and promote economic exchanges and investment between two countries by avoiding double taxation. Cyprus has 45 double taxation agreements and is negotiating with many other countries. Under these agreements, a credit is normally accepted against the tax collected by the country in which the taxpayer is established for taxes collected in the other contracting country, resulting in the taxpayer not paying more than the higher of the two rates. Some contracts provide for an additional tax credit that would otherwise have been due had it not been provided for incentives in the other country, which would have resulted in an exemption or tax reduction. The need for an agreement on double tax evasion stems from conflicting rules in two different countries regarding income compensation on the basis of receipt and delimitation, housing status, etc. In the absence of a clear definition of internationally recognized income and tax debt, income may become taxable in two countries.