Basics of international taxation

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 cases landmark judgment gets overruled. Every year budget is prepared keeping public interest in mind whereby finance minister announces the budget. Over the last decade there is new evolution and a contemporary subject which is a niche, Dynamic and ever-changing subject called international taxation. This is a very new innovation for Chartered accountants to explore in this field and do some courses on it who well want to practice. As businesses are no longer confined to local territories and willing to expand overseas and overseas investors also want to invest in India the scope of international taxation has enormously expanded. International taxation has seen huge changes in a decade of time.

Basic dictionary in international Taxation (like a poem)

• Residential status
• POEM (Place of effective management)
• Tie breaker rule
• General anti avoidance rule(GAAR)
• Business connection
• Significant economic presence
• Equalisation levy
• Tonnage taxation
• Vienna convention
• OECD/UN Model convention
• Limitation of benefit (LOB)
• Transfer pricing
• Arm length price (ALP)
• Board for advance ruling
• Permanent establishment
• Business profit
• Double taxation avoidance rule(DTAA)
• Advance pricing agreement (APA)
• Dispute resolution panel (DRP)

The above serves like a understanding to beginners which indeed is fundamental to understand the dynamic subject International taxation and even to a large extent direct taxation which also has lot of international tax provision embedded into it .

Thumb rules in international taxation

The above are framed for a lucid understanding of the subject and make very interesting for practice or even examination.

1. Irrespective of status of assesse it is of paramount importance to determine residential status as taxability is so crucial .
2. A resident and ordinary resident at a global level is taxed but relief is provided by way of act or DTAA which is very beneficial.
3. A foreign company residential status cannot be determined at the year beginning therefore the same is always treated as non resident for purpose of tax deduction and tax is deducted by the other party under section 195 of income tax act 1961.
4. Any payment to non resident tax will be deducted under section 195 of income tax act . irrespective of threshold surcharge and cess will have to be added along with it
5. Unless stated otherwise Tax deduction is on gross basis whereby other party (recipient) pays the tax . whereby net basis TDS amount need to be grossed whereby payer bears the tax (surcharge cess is included in it).