• The leaders of India and Qatar signed a revised agreement for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income.

• India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries.

What is double taxation?

Double taxation arises where comparable taxes are imposed in two or more jurisdictions on the same taxpayer in respect of the same income or capital and for identical periods. The obstacles it presents can hamper investment. To avoid this, jurisdictions with significant ongoing cross-border trade and investment may opt to conclude a double taxation treaty (DTT) that provides the terms for eliminating double taxation.

Double taxation treaties

• Double taxation treaties (DTTs) are agreements entered into by two or more jurisdictions to, primarily, avoid international juridical double taxation of income and capital. 

• Double taxation can hinder the exchange of goods and services, and the movement of capital, technology and persons. 

• To avoid this, governments typically adopt unilateral measures to provide relief for taxpayers in national laws. This is done by either exempting foreign-earned income from taxation or by providing a credit for the taxes paid abroad. Two jurisdictions with significant ongoing cross-border trade and investment may opt to conclude a DTT that provides the terms for eliminating double taxation.

• DTTs generally cover direct taxes on income and capital. They do not cover indirect taxes or levies that are not considered taxes in the strict sense, such as social security contributions. 

• Some types of levies, such as digital services taxes, may be specifically designed in a way that leaves them outside the scope of DTTs. 

• The rules of a typical DTT provide two ways of eliminating double taxation. 

• One is by allocating the taxing rights to a single jurisdiction. This will determine the contracting State that will have the sole right to tax a category of income or capital. 

• The other is an allocation rule, which may identify that both contracting States have a right to tax the income and, where double taxation arises, one jurisdiction is required to provide relief (by exemption or credit).

• International efforts to reduce the occurrence of double taxation are part of the international economic law framework that governs the flow of international goods and services, investment and transfers of technology. 

• DTTs aim to prevent discriminatory treatment of taxpayers, increase certainty regarding the tax implications of an investment decision and manage the resolution of disputes related to double taxation between the contracting States. 

• DTTs have additional tax-specific goals. These include the prevention of non-compliance, tackling tax avoidance and evasion, as well as improving cooperation between tax authorities by providing for the exchange of tax information and mutual assistance in tax collection.

Models of DTTs

• DTTs have a long-established history, with the first treaty concluded between Prussia and Saxony in 1869.

• International cooperative efforts on the design of model rules formally began at the League of Nations in the 1920s. Since then, a number of international and regional organisations have engaged in developing and evaluating model rules. 

• Examples include the Organisation for Economic Cooperation and Development (OECD), the United Nations Committee of Experts on International Cooperation in Tax Matters (UNTC), the African Tax Administration Forum, the European Union and the Inter-American Center of Tax Administrations (CIAT), among others. 

• The two leading model tax conventions (MTCs) utilised by countries are those designed by the OECD and the UNTC, respectively.

• Their overall structure is highly similar and the most important difference between the two models is that the UN MTC seeks to cater more strongly to source countries, which largely aligns with the needs of developing economies.

• The model rules have been subject to ongoing revisions triggered by globalisation, changes in business and investment practices and to respond to common schemes to avoid or evade the payment of taxes.

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