W- Nov DTAA

Double taxation is the levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).

• This 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 personal taxation when they receive dividends or distributions of those profits.

India has comprehensive Double Taxation Avoidance Agreements (DTAA ) with 82 ^[ countries.

• This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country.

• A large number of foreign institutional investors who trade on the Indian stock markets operate from Mauritius. According to the tax treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.

The Indian and Cypriot tax treaty is the only other such Indian treaty to provide for the same beneficial treatment of capital gains.
It must be noted that India has and is making attempts to revise both the Mauritius and Cyprus tax treaties to eliminate this favourable treatment of capital gains tax.

The Indian government periodically check for its DTAA with many countries and come up with amendments.

The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income and on capital on 8th September, 2011. 

 

The Agreement was signed by Mr. M. C. Joshi, Chairman, Central Board of Direct Taxes on behalf of the Government of India and by Mr. Cesar Ferrer, Ambassador of Uruguay to India, on behalf of the Oriental Republic of Uruguay.

• The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in that state. Such permanent establishment includes a branch, factory, etc. Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for more than six months.

• Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalty income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 5% in the case of dividends and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source and tax credit will be given in the country of residence.

• The Agreement further incorporates provisions for effective exchange of information including banking information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

The Agreement will provide tax stability to the residents of India and Uruguay and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Uruguay.

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