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Fundamentals of International Taxation

Fundamentals of International Taxation

There are 3 papers in this series :

I. Tax Incidence & Residence.

II. Double Tax Avoidance Agreement Models.

III. Tax Havens.

These papers were presented by Mr. Rashmin Sanghvi at the Income Tax Appellate Tribunal Orientation & Training Programme, Mumbai on 12th August, 2012.

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Notes :

1. These are conceptual papers. Case law citations are almost Nil.

2. Most of the delegates know this subject very well. At the same time, some may not. It is a difficult issue for me – at what level to raise and discuss the issues. The solution adopted in these papers is: raise many issues in the papers. Discuss only those issues which the Honourable Delegates find interesting.

3. While discussing the papers on 12th August, if any Delegate wants to raise any issue, please raise the issue straight away. Do not wait till the end of the presentation. Some of the paragraphs will not be covered on 12th. That is O.K. All paragraphs are self-explanatory.

4. This is an humble attempt to present some issues out of a vast subject. These papers may only give a brief idea. Almost each Article of the DTA needs one full session. I am sure, other speakers will cover the subjects in details.

5. Domestic Tax Practice Vs. International Tax Practice

International tax is not something separate or independent of domestic tax. One cannot say that he will specialise in international tax but he will not study domestic tax at all. Let me compare and illustrate the issue.

A doctor may be M.B.B.S. He will be a family doctor. Another person may study further and become an MD. or MS. An MD cannot say that without doing M.B.B.S. he wants to be an MD. Similarly, a tax consultant has to be first a chartered accountant or an advocate and then he can further specialise in international taxation.

An ENT specialist or a heart specialist will not give medicine for a patient who is suffering from common cold and fever. The heart surgeon has already mastered the cause and the treatment for cold. However, having specialised in heart matters, he stops treating common ailments. Similarly, an expert in international taxation has to first master domestic taxation. Having mastered domestic taxation he further specialises in international taxation. Having specialised in one subject he may reduce his practice on minor issues.

6. International Taxation is not difficult :

Any person who can master Indian Income-tax Act, can also master Double Tax Avoidance Agreements (DTA) and International Taxation as a whole. The difficulties in International Tax practice/ administration arise because :

(i) We have not studied this as a subject in our college / post-graduation. Having started practice / service we do not spend time necessary for studying a new subject.

(ii) There are some concepts and practices specific on International taxation. These have to be studied in proper class room / conferences. For example- Jurisdiction, Underlying Tax Credit, Controlled Foreign Company rules, Elimination of Double Taxation and so on.

(iii) Tax avoidance/ Tax planning tools used in international taxation are different from the tools used in domestic taxation. There is a whole new breed of tax avoidance abettors – Governments of Tax Haven countries, most reputed banks and financial institutions.

Indians could not imagine that the Government of a foreign country could be active partner in tax avoidance, tax evasion and money laundering. We could not even believe that very large international banks could be active partners in tax evasion and money laundering. So much for our innocence.

This innocence makes international tax administration difficult and justice crippled.

All these difficulties can be met with by intensive study courses followed by regular studies and conferences.

7. Short forms used :


AO Assessing Officer.
CIT Commissioner of Income-tax.
COM Country of Management.
COP Country of Payment.
COR Country of Residence.
COS Country of Source.
DTA Double Tax Avoidance Agreement.
GOI Government of India.
IR Indian Resident.
ITA Income-tax Act.
NR Non-Resident. He may be of foreign origin or of Indian origin.
NOR Not Ordinarily Resident.
NRI Non-Resident person of Indian origin.
PE Permanent Establishment.
RBI Reserve Bank of India.

Professional institutions working for continuing education in the field of international taxation.


BCAS Bombay Chartered Accountants’ Society.
CTC Chamber of Tax Consultants.
FIT Foundation for International Taxation.
ICAI Institute of Chartered Accountants of India.
IFA International Fiscal Association.