By Mohammad Anas, Aligarh Muslim University, Kerala.
In order to write about what a Double Taxation Avoidance Treaty is, first let me throw some light upon the meaning of Double Taxation. Double Taxation occurs when an individual is required to pay two or more taxes for the same income, asset or financial transaction in different countries. It may occur when the legal authority associations, used by different nations, overlap or it may occur when the taxpayer has links with more than one country.
To avoid this liability of Double Taxation various countries enter into special treaties, known as the Double Taxation Avoidance Agreement, to protect their individuals and companies from paying double taxes and to help boost their income and the countries’ economy on the whole. It is essentially a bilateral agreement entered into between two countries. The basic objective is to promote and foster economic trade and investment between two countries by avoiding double taxation.
India has also entered into such Tax Treaty Agreements with almost 71 countries under Section 90 and Section 91 of the Income Tax Act 1961.
Two types of relief that India provides from Double Taxation are:
- Unilateral Relief:-
Under section 91, the Indian Government can relieve an individual from Double Taxation irrespective of whether there is a Double Taxation Avoidance Agreement between India and other country concerned.
- Bilateral Relief:-
Under Section 90, the Indian Government offers protection against Double Taxation by entering into Double Taxation Avoidance Agreement with another country, based on mutually accepted terms.
One of these countries is Thailand. The Government of India entered into an agreement of double taxation avoidance of income and the prevention of fiscal evasion with the Kingdom of Thailand on 22nd March 1985.
Whereas the annexed convention between the Government of the Republic of India and the Government of the Kingdom of Thailand for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has been ratified and the instruments of ratification exchanged as required by Article 28 of the said Convention on 13th March, 1986.
Now, therefore, in exercise of the powers conferred by Section 90 of the Income-tax Act, 1961 (43 of 1961), and Section 24A of the Companies (profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all provisions of the said Convention shall be given effect to in the Union of India.
This Convention shall apply to persons who are residents of one or both of the Contracting States.
- This Convention shall apply to taxes on income imposed on behalf of each Contracting State or of its political sub-divisions or local authorities, irrespective of the manner in which they are levied.
- These shall be regarded as taxes on income all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, as well as taxes on the total amounts of wages or salaries paid by enterprises.
- The existing taxes to which this Convention shall apply are: –
- In the case of India:
- the income-tax including any surcharge there on imposed under the Income- Tax Act, 1961 (43 of 1961).
- the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964);
- In the case of Thailand:
- the income-tax; and
- the petroleum income-tax,
- The Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the taxes referred to in paragraph 3 of this Article. The competent authorities of the Contracting States shall notify each other of significant changes which have been made in their respective taxation laws.
India Thailand 7th Joint Commission meeting was held in Bangkok in which some important documents were signed by the External Affairs Minister Sushma Swaraj and Deputy Prime Minister and Foreign Affairs Minister of Thailand Gen Tanasak Patimapragorn.
Some of those documents were:
- New DTA Treaty and MoUs regarding the same to provide framework to increase investment and promote bilateral economic cooperation between both countries on 29th June 2015.
Two MoUs were also inked on the same day i.e., 29th June 2015.
- First was on establishment of the Nalanda University. By signing this agreement, Thailand joined other East Asian Summit (EAS) countries in the establishment of the university.
- And second on the establishment of the ‘Academic Chair’ in Ayurveda to undertake academic and research activities in Thailand.
TAX TREATIES PLAY SOME MAJOR ROLE IN INTERNATIONAL TAX PLANNING SUCH AS:-
- Facilitating investment and trade flow, preventing discrimination between taxpayers; adds fiscal certainty to cross border operations.
- Promoting cooperation between or amongst States in carrying out their obligations and guaranteeing the stability of tax burden.
- So far as income from capital gains is concerned, gains arising from transfer of immovable properties are taxed in the country where such properties are situated. Gains arising from the transfer of movable properties forming part of the business property of a ‘permanent establishment ‘or the ‘fixed base’ is taxed in the country where such permanent establishment or the fixed base is located.
- Income derived by rendering of professional services or other activities of independent character are taxable in the country of residence except when the person deriving income from such services has a fixed base in the other country from where such services are performed.
- The agreements also provide for jurisdiction to tax Director’s fees, remuneration of persons in Government service, payments received by students and apprentices, income of entertainers and athletes, pensions and social security payments and other incomes.
- It may sometimes happen that owing to reduction in tax rates under the domestic law taking place after coming into existence of the treaty, the domestic rates become more favourable to the non-residents. Since the objects of the tax treaties is to benefit the non-residents, they have, under such circumstances, the option to be assessed either as per the provisions of the treaty or the domestic law of the land.
- In order to avoid any demand or refund consequent to assessment and to facilitate the process of assessment, it has been provided that tax shall be deducted at source out of payments to non-residents at the same rate at which the particular income is made taxable under the tax treaties.
As is evident from the aforementioned points that international tax planning plays a major role in establishing a strong relationship between countries.
Therefore, India and Thailand also engaged into the Double Taxation Avoidance Agreement to build a strong relationship, promote tourism, help other companies to gain interest, establish their business in either of the countries and build a bold economic status, promote business profits of enterprises, reduce income tax on petroleum products, regulate international traffic as per the provisions, manage distributions of interest and dividends as per provisions of the concerned act with all.
There is no doubt that this tax treaty has brought India and Thailand closer.