Basics of international taxation

Venkat Raj | Last updated: 23 July 2022

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International taxation is a dynamic and evolving field, crucial for businesses expanding overseas and foreign investors in India. This article introduces fundamental concepts such as residential status, Place of Effective Management (POEM), and Double Taxation Avoidance Agreements (DTAA). Understanding these basics is essential for anyone practising or studying direct taxation, which increasingly incorporates international tax provisions.

In India, Income tax act 1961 along with Income tax rules 1962 regulates the direct taxation system. CBDT is the regulator for the income tax which issues circulars, notifications. There are lot of landmark judgments in high court and supreme court forum however there is a possibility that on few ca

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FAQ :

In India, the Income Tax Act 1961, along with the Income Tax Rules 1962, regulates the direct taxation system. The Central Board of Direct Taxes (CBDT) acts as the regulator.

The scope of international taxation has expanded because businesses are increasingly operating beyond local territories and expanding overseas, while foreign investors are also keen to invest in India.

Residential status is of paramount importance as it determines taxability. A resident and ordinary resident at a global level is taxed, though relief is provided through the Act or Double Taxation Avoidance Agreements (DTAA).

Any payment made to a non-resident is subject to tax deduction under Section 195 of the Income Tax Act 1961. This deduction is typically on a gross basis, meaning the recipient pays the tax, unless otherwise stated.

Key terms include Residential status, POEM (Place of Effective Management), GAAR (General Anti Avoidance Rule), DTAA (Double Taxation Avoidance Agreement), Transfer Pricing, and Permanent Establishment.