International taxation involves taxes levied on cross-border transactions between entities in different countries. Key concepts include residence-based and source-based taxation, double taxation, and double taxation avoidance agreements (DTAAs), which help prevent dual tax liabilities. India has established DTAAs with 88 countries, specifying taxation rates based on residency and income types, while foreign companies in India face tax implications depending on their management control and activities within the country.

1. INTERNATIONAL
TAXATION
By Anam Shahid
9th December,2013

2. What is International taxation?
International taxation refers to tax levied on
the cross –border transaction. The transaction
may take place between two or more persons
or entity in two or more countries or tax
jurisdiction .Such a transaction may involve a
person in one country with property and
income flows in another.

3. Types of international taxation


Residence based taxation :residents of the
country are taxed on their worldwide (local and
foreign) income.
Source Based Taxation :only local income
income from a source inside the country is
taxed. Usually nonresidents are taxed only on
their local income

4. Concept of double taxation


The transaction taking place in more than one
country such a transaction may be subject to
more than one tax authorities or taxed twice
by same or different tax authorities such
taxation is referred to as “double taxation.”
Such a factor can Impair the economic
development of a person and entity therefore
avoidance is required.

5. Double Taxation Avoidance
agreement (DTAA)


To avoid the incidence of double taxation
DTAA (Double taxation Avoidance
agreement) among countries are signed.
There are treaty models developed on which
the agreements are drafted such as the OECD
model (organization for economic cooperation and development ) and UN model.

6. DTAA
Double taxation agreement are classified on the basis of
1) Parties:
a)
Bilateral treaties: the agreement on double taxation entered
between two countries
b)
b) Multilateral Treaties: the agreement on double taxation
entered between a groups of countries .
2) Scope :
a) Comprehensive DTA: The taxes on income and capital
gains .the taxpayers in both the countries would be treated
equally in respect of issues related to Double taxation .
b) Limited DTA: the specified limit to the tax on income
from shipping, air, transport or estates, inheritance and gifts.

7. Taxability of foreign income
India has signed DTAA with 88 countries out of
which 85 have been entered into force which
specifies the agreed rates of tax and jurisdiction on
specific types of incomes levied in a country to a tax
resident of another country . the income earned
outside India will be subject to taxes on the basis of
residential status.
1)Resident : If resident a)DTAA with foreign country
exists then the tax will be levied under section 90 and
90A the DTAA rate or the income tax rate whichever
is low .
b) If DTAA does not exist no taxes will be levied
2) Nonresident: not subject to any taxes.

8. Relief to the tax payer


Bilateral relief under section 90& 90A of
income tax act for taxpayers who have paid
tax to a country in which India has signed
DTAA
Unilateral relief under section 91 of income tax
act provide relief to taxpayers who have paid
tax to a country with which India has not
signed DTAA

9. Tax implication of activities of foreign
enterprise in India: Mode of entry and
taxation respectively

10. Mode of entry
There are two types of entry which a foreign firm
may find suitable Equity and non equity .the
forms of equity are:
 1) joint venture company
 2) Wholly owned subsidiaries
 3) Acquisition
 4) Foreign technology collaboration
while the forms of non equity are : exports and
contractual agreements (other types on a
temporary basis may be liaison office, project
office and Branch office.)

11. Tax on foreign entities in India
The tax being levied on each type depend on the residential
status of the company and its control & management of
affairs of the tax payer (foreign company )
1)If the Control & management of affairs of the company is
wholly in India the company is resident and entitled to pay
tax.
2) Control & management of affairs of the company is wholly
outside India the company is nonresident & not entitled to
tax
3)Control & management of affairs of the company is partly
in India partly outside India the company is regarded as
nonresident therefore not entitled to tax

12. Tax liability
A foreign company is liable to tax, in respect of income
deemed to accrue in India. The incomes which are deemed to
accrue or arise in India are prescribed in section 5 to section 9
following:
(a) Income arising from a business connection in India, which is
reasonably attributable to operations carried out by foreign
company in India
(b) Income arising from any property in India;
(c) Income arising from any asset or source of income in India;
or
(d) Income arising from transfer of a capital asset situated in
India;
(e) Royalty payable from India;
(f) Fees for technical services payable from India, etc.

13. Other sources
The income of a non resident foreign company shall be
subject to tax at the following rates :
Income from special sources.
(i) Interest 20%
(ii) Dividend on which DDT has not been paid in India @20%
(iii) Royalty/Fees for technical services @ 20%
(iv) Income by way of winnings from lottery, races, games,
etc.@30%
Balance income – Income from ordinary sources@ 30%

14. Tax on receipts
Schedule 14 of the Code provides for a presumptive taxation at specified rates on
receipts
Earned from India in case of following businesses:
1. Business of civil construction in connection with a turnkey power project approved by
the Central Government in this behalf @10%
2. Business of erection of plant or machinery or testing or commissioning thereof, in
connection with a turnkey power project approved by the Central Government in this
behalf @10%
3. Business of provided services or facilities in connection with the prospecting for, or
extraction or production of, mineral oil or natural gas @14%
4. Business of supplying plant and machinery on hire, used or to be used, in the
prospecting for, or extraction or production of, mineral oils or natural gas@ 14%
5. Business of operation of ships (including an arrangement such as slot charter, space
charter or joint Charter) 10%
6. Business of operation of aircraft (including an arrangement such as slot charter, space
charter or joint charter) @ 7%
The specific rates on the income shall be payable without any other
Deductions on the gross receipts collected in relation to business carried out at India.