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International Tax Advisory
INTERNATIONAL
TAX ADVISORY
CONCEPT OF GLOBAL VILLAGE
GENESIS OF INTERNATIONAL
TAXATION
International Taxation is a study on determining the Tax accrued on an individual
or business based on the different Tax laws of different countries, whereby either
the individual or the business has existence in more than one country.
With increasing globalization, Multinational Companies across the world are
investing more and more in India and as they go about establishing themselves, it
is very crucial for them to understand India’s tax structures and regulatory
policies. Similarly, Indian domestic companies interested in or planning to go
global or be listed on the overseas bourses also need to understand the
complexities of cross-border taxes and regulations. Knowledge of corporate tax
and regulatory framework for carrying out any activity is now an integral part of
doing business in India or overseas.
To understand and work out any tax scenario in India, assessing the residency of
individuals / multinational companies is critical. Another key area is transfer
pricing, which due to increased global trades, confronts a company with cross
border transactions with complex tax issues. As global trade increases,
companies are confronted more and more with complex issues associated with
intercompany pricing.
ILLUSTRATION OF
INTERNATIONAL TAXATION
TYPES OF INTERNATIONAL
TAXATION
Residents of the Only local
country are income from a
taxed on their source inside the
worldwide (local country is taxed.
and foreign) Usually
income nonresidents are
taxed only on
their local
income
RESIDENCE BASED
TAXATION
SOURCE BASED TAXATION
CONCEPT OF DOUBLE
TAXATION- THE HIGH MAST
IN INTERNATIONAL
TAXATION
NEED FOR DTAA- DOUBLE
TAXATION AVOIDANCE
TREATY
WHAT IS DTAA?
DTAA is also known as treaty and Treaty is explained in Vienna convention
on law of tax treaties 1969 as under:
“An international Taxation Agreement concluded between states in written
form and governed by international law, whether embodied in a single
instrument and whatever its particular designation”
A treaty is not a taxing statue, although it is an agreement about how taxes
are to be imposed.
It is an act between two sovereign states and terms and conditions
mentioned therein have to be strictly followed.
TAXABILITY OF FOREIGN
INCOME
India has signed DTAA with 88 countries out of which 85 have been entered
into force which specifies the agreed rates of tax and jurisdiction on
specific types of incomes levied in a country to a tax resident of another
country . The income earned outside India will be subject to taxes on the
basis of residential status.
1)Resident : If resident
a)DTAA with foreign country exists then the tax will be levied under section 90
and 90A the DTAA rate or the income tax rate whichever is low
b) If DTAA does not exist no taxes will be levied
2) Non-resident: not subject to any taxes.
RELIEF MECHANISM UNDER
DTAA: CLUSTER OF
METHODS
CHART FOR DETERMINATION OF
RESIDENCY OF DUAL RESIDENT BY TIE
BREAKER RULES
WHICH DTAA TREATY TO
APPLY: A TRIANGULAR CASE
DISPULet uTs unEderstand the above triangular case as
on issue to DTAA by an example.
There are 3 Companies. They are:
X, India
Y, UK (Z is a permanent Establishment of Y,
UK)
Z, Mauritius (Branch of Y, UK)
X takes loan from Z. Z receives interest from X.
Which Treaty is applicable?
1. Indo-Mauritius Treaty
2. UK-Mauritius Treaty
3. Indo-UK Treaty
CONTD…
Treaty is applicable to the persons resident in one or both the states. Person other than individual is a
resident of state where its place of effective management is situated
Indo – Mauritius Treaty
Z is a non resident of Mauritius as well as India. Hence Indo Mauritius Treaty is not applicable
UK – Mauritius Treaty
Z is a non resident of Mauritius. It has its place of effective management in UK and hence is a resident
of UK. However X being a resident of India does not have access to UK – Mauritius Treaty.
Indo – UK Treaty
Z having its place of effective management in UK is a resident of UK (though located in Mauritius). X
being a resident of India will deduct tax of Z under Indo – UK treaty.
Credit of taxes to Y or Z?
The tax credit will not be available to Z since the tax is not deducted under Indo – Mauritius Treaty.
(relief of taxes paid under the relevant treaty only are granted by a particular treaty). The tax credit will
be available to Y while filing its return of income since the income of Z (PE of Y) will be clubbed with the
income of Y.
OTHER IMPORTANT ASPECTS
IN INTERNATIONAL
TAXATION
GAAR
(General Anti
Avoidance TRANSFER
Rules) PRICING
CONTD…
GAAR (General Anti-Avoidance Rules) is a tool for checking aggressive
tax planning especially that transaction or business arrangement which is/are
entered into with the objective of avoiding tax. It has been introduced in
India due to VODAFONE case ruling in favour of this company by the
Supreme Court. For example: “A” makes a company XYZ to sell product C.
The company B pays 35% tax, but if “A” himself sold the products he would
pay 40% tax. “A” has formed the company only to save 5% tax.
In taxation and accounting, TRANSFER PRICING refers to the rules and
methods for pricing transactions within and between enterprises under
common ownership or control. Because of the potential for cross-border
controlled transactions to distort taxable income, tax authorities in many
countries can adjust intragroup transfer prices that differ from what would
have been charged by unrelated enterprises dealing at arm’s length
(the arm’s-length principle). The OECD and World Bank recommend
intragroup pricing rules based on the arm’s-length principle, and 19 of the 20
members of the G20 have adopted similar measures through bilateral
treaties and domestic legislation, regulations, or administrative practice.
INTERNATIONAL TAX
ADVISORY- THE INCLUSIONS
Advisory on cross-border transactions and tax structuring advisory on M&A
transactions;
Advisory on applicability/availability of tax benefits under SEZ Policy, EOU &
Domestic Tax Laws;
Advisory on applicability/availability of tax benefits under the Comprehensive
Economic Partnership Agreement (CEPA) & Free Trade Agreements (FTA) signed
by India with other Countries;
Advisory on Corporate, Withholding Tax & Personal Income Tax Matters under the
Domestic Income Tax Act and Tax Treaties;
Evaluation of tax treaties to examine taxability and availability of tax treaty
relief;
Representation before Appellate Authorities and Appeals;
Obtaining Advance Rulings from Authority of Advance Rulings & Obtaining
Concessional Withholding Tax Determinations;
CONTD…
Assistance in preparation and filing of Withholding Tax, Personal Income Tax;
Managing State Level Taxes / Compliances;
Foreign Asset Disclosures for Expatriates Working in India;
Advisory on Advance Pricing Arrangements for International Transactions;
Pay Roll Structuring including Global Salary and Tax Compliances for Expatriates
including Income Tax Clearances Certificates at time of relocation from India.
Advisory on Value Chain Alignment (VCA) and International Expansion Services.
Analysis and advisory with respect to permanent establishments of foreign
companies/entities in India
International tax services and advisory on aspects related to GAAR (General Anti-
Avoidance Rules), DTAA (Double Taxation Avoidance Agreements) and BEPS (Base
Erosion and Profit Sharing)
CONTD…
Profit and cash repatriation planning for foreign establishments
Advisory on equalization levy
Assistance in compliance related to transfer pricing documentation,
including master file, local file and country-by-country report
Transfer pricing advisory on complex structures and international
transactions
Representation before tax and transfer pricing authorities for tax
assessments or audits by revenue authorities
Support in preparation of and transfer pricing litigation strategy
Engaging counsels for representation before high-level litigation authorities
THE GOVERNMENT OF INDIA- PROVIDING
COMPLETE GUIDE ON INTERNATIONAL
TAXATION
The Income Tax Department, Government of India on its website:
https://www.incometaxindia.gov.in/pages/international-taxation.aspx has
provided various content with the following heads, which is hereby
provided for suggested readings and references. The website page
suggested, appears as:
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