Thursday, May 12, 2016

new amendment to DTAA

Double taxation is the levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). Mauritius has a DTAA with India and its tax rates in own country are too low. This ensures firms operating from Mauritius have to pay minimal tax for investments in India thus serving as tax haven for tax evaders.
Implications of new amendment to DTAA
a. It would prevent round tripping of capital wherein a foreign firm used to invest in India through establishing shell or paper companies in tax haven having DTAA with India.
b. Boost in revenue: Capital gains tax will help boost fiscal revenues and reduce fiscal deficit in line with FRBM act.
c. The DTAA amendment would provide a level playing field for all international investors, irrespective of domicile,that would help enhance India’s attractiveness as an investment destination in the long run.
d. It would also ensure India’s conformity to OECD and G20-led guidelines on combating base erosion and profit shifting. In 2015, the OECD had spelt out a series of measures countries needed to take to curb abusive tax avoidance by multinational enterprises — including steps to tighten double taxation avoidance treaties.
e. These steps would bring forth a predictable tax regime and avoid cases like vodafone capital gains tax case.A predictable tax regime is precursor to attract investment.
The amendment is a step in right direction to remove the ill conceived agreement misused hitherto by foreign investors.

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