International Tax

 International Tax is a field where the taxing jurisdiction of two countries is involved. Tax is a sovereign issue and every state has its right to tax its residents but when there is taxing of the same property or person by two different states then the conflicts arise. The problem comes when there is an “imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods “(OECD Committee on Fiscal Affairs). Therefore International double taxation occurs where the tax authorities of two or more countries concurrently impose taxes having the same bases and incidence in such a way that a person incurs a heavier tax burden than what he suppose too. A country will usually reserve a right to tax its residents on their worldwide income and also the tax authority usually wish to tax all income and gains no matter the person is resident or no and this is done on source basis. Under the source principle a country reserves the right to tax not only the worldwide income and gains of its tax residents but also the income and gains of non-residents arising within its border.

One of the key issues on international tax is the question of jurisdiction which arises through residence and source. The way in which these concept interact causes potential problems and there is more debate about which is more important in terms of the allocation of taxing rights between nation states. Principle guiding the development of international tax policy includes capital export neutrality and capital import neutrality. Much of the focus of current international tax policy development stems from the need to control the tax planning activities of multinational group of companies who have considerable choice available to them as to where to locate their activities so as to potentially achieve tax savings.

Under Section 90 of Indian Income Tax Act, the Central Government is authorised to enter into Double Tax Avoidance Treaties (DTAA). The object of such agreements is to evolve an equitable basis for the allocation of the right to tax different types of income between ‘source’ and ‘residence’ states ensuring in that process tax neutrality in transactions between residents and non- residents. India had DTAA with most of the countries.