DBAAs can be either complete, all sources of revenue are encapsulated or limited to certain areas, which means that revenues from shipping, inheritance, air transport, etc., are taxed. India currently has DTAA with more than 80 countries, with plans to sign such contracts with more countries in the coming years. Among the countries with which it has comprehensive agreements are Australia, Canada, the United Arab Emirates, Germany, Mauritius, Singapore, the United Kingdom and the United States of America. 7. Application of the provisions on the elimination of double taxation: each of the material items must be taken into account with Article 23, which defines the methods for eliminating double taxation. DBAAs are sometimes used by unscrupulous companies to pay very less or no taxes by being imitated as companies or entities in one of the countries parties to the agreement. The result is an end in sales. To avoid this, countries generally include a “Limitation of Benefits” (LoB) clause in their DBAAs. Yes, yes. As a hub for international investment and as a training for large numbers of emigrants, India understood the importance of DBAA and actively followed this issue. For example, our country has 85 such active agreements. Apart from these separate international conventions, the Income Tax Act itself provides for an exemption from double taxation.
This is dealt with in sections 90 and 91. In the event of a conflict, the provisions of the DBAA are binding. In India, the central government has been authorized, in accordance with Article 90 of the Income Tax Act, to enter into agreements with other countries on double tax evasion (so-called tax agreements). Take, for example, the DBAA between India and Singapore. As a result, capital gains on shares are taxed on the basis of place of residence. It helps reduce revenue losses, avoid double taxation and streamline investment flows. In the current situation where there is economic instability in the market, this is a major setback for investors, where each country is trying to create a friendly market for investment and where judgments like AAR will remove investors from the country. First, the effects of such an order are expected to be colossal. Investors were protected under the grandfather`s general rule, i.e. investments before April 1, 2017, will not be taxable, but after changing the rules of the agreement between the Government of the Republic of India and the Government of Mauritius to avoid double taxation, exit plans have been strengthened2.
The impact would also be visible in the process, as there is considerable uncertainty about the resignations of private equity firms and the DBAA signed by India with Mauritius. This is not the first time AAR has ruled against the normal course of the contract. On a few occasions, it has been found that investors and companies derive their money from Mauritius and Singapore, primarily to take advantage of DTAA`s advantage between India and Mauritius. 5. Provisions to avoid tax evasion: they include Articles 9 (associated companies) and 26 (exchange of information). The petitioner argued that the transaction was not on its face, which was made to avoid tax. It is not the structure of the holding company, but this specific transaction that defines the intention to avoid taxes or not, which the authorities have not demonstrated. In addition, it was suggested that all decisions and board meetings were made on behalf of the Mauritian company and its directors.