International

Taxation
Presentation by
J.K.P. Chaudhary, IRS
 Basics of International Taxation
• International taxation is the study or determination of tax on a person or business
subject to the tax laws of different countries or the international aspects of an individual
country’s tax laws as the case may be.
• International taxation encompasses global tax rules that apply to transaction/s
between two or more countries.
• Three basic rules of Taxation:
– Source rule;
– Residence rule; and
– Citizenship rule
 Residence and Source-Based Taxation Systems
The principles of residence and source-based taxation are foundational in international tax law. The
residence-based system taxes residents on their worldwide income, regardless of where they earned that
income. For example, a US citizen residing in India would still be obliged to pay US taxes on their
global income.
Contrarily, the source-based system taxes income where it is earned. If a foreign corporation operates
and makes a profit in India, those profits would be subject to tax in India, even if the corporation is
based in USA. These two principles often intersect in international business, creating a need for
mechanisms to prevent unfair double taxation.
 Agenda
A Basic Basics Of International Taxation

B IT Provision Section 5, 6, 9, 90 of The Income Tax Act

Double Taxation Avoidance

C DTAA
Agreements & other important
concepts

Deduction Section 195 and Form 15CB

D
To understand International
E Practical
Taxation in departmental
working
 Basic Terms -
• Resident and Ordinarily Resident (R&OR): if he/she is:
• present in India in that tax year for a period or periods totaling 182
days or more or
• present in India for at least 60 days or more during the Previous
Year and 365 days or more during the preceding four years.
• Non Resident (NR):
if he/she does not satisfy either of the above mentioned conditions.
• Resident but Not Ordinarily Resident (R&NOR):
Individual who is a resident but:
• has been non-resident in India in nine out of the ten tax years
preceding that tax year or
• has during the seven tax years, preceding that tax year, been in
India for a total period of 729 days or less.
 Residential status- Individual
Clause Individual Condition Resident- No. of Days Condition R-
NOR
Status
1) - 182 Days or more OR - NR in 9/10 PY or
Any - 60 days + 365 days in 4 - 729 days or less
-
Person PY in 7PY

Clause COI -India Ship Crew Member or 60 days 182 +365 days in
(a) of (leaves -For the purpose of 4 PY
Ex 1 India) Employment outside India
Clause (b) 60 days 182 +365 days in The Period of 120
of Ex 1 -Visits India from outside India 4 PY days to 181 days
COI/POI
+ Total Income of Rs 15 Lakh or 60 days 120 +365 days in
More 4 PY

(1A) Total Income of Rs 15 Lakh - Always R-NOR

COI or more and not liable to
tax in any other country
 Residential Status of Company

As per section 6(3) of Income tax Act, a company is said to be a resident in India in
any previous year, if—
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India.

Explanation.- For the purposes of this clause "place of effective management" means
a place where key management and commercial decisions that are necessary for
the conduct of business of an entity as a whole are, in substance made.
 Residential Status - To summarize
Determining Factors
Stay in India, Physical Presence ,Citizenship, Liable to tax,
▰ Individual
etc.

Control & Management- Non-Resident where control and

▰ HUF, Firm, AOP
management of its affairs is wholly situated outside India

Incorporation, Place of effective management, in that

▰ Company
year, in India

Control & Management- Non-Resident if control and

▰ Others
management of its affairs is wholly situated outside India
 Non-
Resident
Resident
Sec 5 & 6
Only income
Global
received/deemed
Income is to received,
taxable accrue or deemed
to accrue or arise
in India is taxable
Therefore for NR, we need to check which incomes are
Accrue or arise in India & deemed to accrue or arise
in India?
 Income Accrue or Arise in India
▰ Income Accrue or Arise in India
In common parlance income would be said to accrue or arise when a person
gets a right on that income.

▰ Explanation 1.—Income accruing or arising outside India shall not be deemed to

be received in India within the meaning of this section by reason only of the fact
that it is taken into account in a balance sheet prepared in India.
▰ Explanation 2.—For the removal of doubts, it is hereby declared that income
which has been included in the total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or arisen to him shall not again
be so included on the basis that it is received or deemed to be received by
him in India.
 Section 9:
Income deemed to accrue or arise in India – Scope
▰ The following income shall be deemed to accrue or arise in India:
In With
▻ All income accruing or arising, ▻ Income chargeable under the head "Salaries" payable
whether directly or indirectly, by the Government to a citizen of India for service
through or from outside India.
▻ any business connection ▻ A dividend paid by an Indian company outside India.
in India, or ▻ Income by way of interest.
▻ any property in ▻ Income by way of royalty.
India, or ▻ Income by way of fees for technical services.
▻ any asset ▻ Income arising outside India, being any sum of money
or source of referred to in sub-clause (xviia) of clause (24) of section
income in India, or 2 (gift income relating to immovable property), paid on or
▻ through the transfer of a after the 5th day of July, 2019 by a person resident in
capital asset situate in India to a non-resident, not being a company, or to a
India. foreign company.
▻ "Salaries", if earned in India.
 Rate – Illustrative List
SECTION DEDUCTEE NATURE OF TDS RATE
TRANSACTION
115A(1)(a) r.w.s. 194LBA(2) NR, FC Dividend 10%,20%

115A(1)(a) r.w.s. NR, FC Interest 5%,20%

194C,194LD,194LBA(2)
115A(2) NR, FC Royalty Or Fees 10%
for Technical
Services
195 NR Any Other Income 30%

195 FC Any Other Income 40%

Tax as per Act = Scope * Rate

 Beneficial Provision
▰ Sec- 90(2) - Where the Central Government has entered into an agreement with the
Government of any country outside India or specified territory outside India, as the
case may be, under sub-section (1) for granting relief of tax, or as the case may be,
avoidance of double taxation, then, in relation to the assessee to whom such
agreement applies, the provisions of this Act shall apply to the extent they are
more beneficial to that assessee. -
▰ Both for Scope and Rate

IT ACT DTAA IT Act DTAA

Sec- 115A As per DTAA- Sec - 115A(1)(b) As per DTAA
Royalty @10% Royalty @ 15% FTS @10.4% FTS @10%
plus surcharge
 Check Scope & Tax rates
1. Check Income
Tax Act 2. Refer
respective
DTAA 3. Sec 90(2)- ITA or
DTAA whichever is
beneficial
 DTAA - Double tax avoidance agreement
▰ Double Tax Avoidance Agreement (DTAA)/ Tax Treaty- As the name
suggests, it is an agreement between two countries to regulate the matters
concerning direct taxes.
▰ DTAAs can be either
▻ Comprehensive, i.e. cover almost all types of incomes covered by
any model convention. Eg. sometime, a treaty covers wealth tax, gift tax
etc.
▻ Limited, i.e. Limited to certain types of Income only. Eg. DTAA
between India & Pakistan is limited to aircraft profits only.
 Significant Model Conventions on which DTAA are
based
OECD Model UN Model US Model

Model Convention Model Convention

between developed between developed
countries – and developing Applied by the
Advocates Residence country– More United States
based taxation emphasis on Source
based taxation
 To sum up

Scope as per

Income Tax
Income Tax
∕ Scope as per
DTAA

of a Non Resident

Rate as per
Income
∕ Rate as per
DTAA

Tax
Section 195: TDS on payment to Non resident

▰ “Any person responsible for paying to a non-resident, not being a

company, or to a foreign company,
▰ any interest (not being interest referred to in section 194LB or section
194LC) or section 194LD or any other sum chargeable under the
provisions of this Act (not being income chargeable under the head
"Salaries") shall,
▰ at the time of credit of such income to the account of the payee or at the
time of payment thereof in cash or by the issue of a cheque or draft or by
any other mode, whichever is earlier,
▰ deduct income-tax thereon at the rates in force.”
 What is Form 15CB?

▰ 15CB is the Tax Determination Certificate where the CA examines the remittance with
regard to chargeability provisions under Section 5 and 9 of the Income Tax Act along
with the provisions of Double Tax Avoidance Agreements.

▰ In form 15CB, a CA certifies details of the payment, TDS rate and TDS deduction as
per Section 195 of the Income Tax Act, if any DTAA is applicable, and other details of
nature and purpose of the remittance.
▰ Upload of Form 15CB is mandatory prior to filling Part C of Form 15CA. To prefill the
details in Part C of form 15CA, the Acknowledgement Number of e- verified form 15CB
should be verified.
Section 195(6) r.w.
Rule 37BB

We have a duty to
protect country’s tax
base
 Section 206AA read with rule 37BC
▰ Section 206AA states that a person who is receiving any income which is liable for TDS shall furnish
his Permanent Account Number to the person responsible for deducting such tax, if not provided
tax shall be deducted at higher of the following:
▰ at the rate specified in the relevant provision of this Act; or
▰ at the rate or rates in force; or
▰ at the rate of twenty per cent.

▰ Rule 37BC was introduced by Finance Bill, 2016 w.e.f. 24.06.2016 which provides relief on
deduction in case of certain payments i.e. payments in the nature of interest, royalty, fees for
technical services and payments on transfer of any capital asset.

▰ However to avail this benefit deductee needs to furnish the following details:
▰ Name, Email-id, Contact number.
▰ Address of the country where he is a resident.
▰ TRC & Tax identification number or any other unique number identified by government.
Steps to keep in mind while making foreign remittance
▰ Verify the original invoice or agreement to know about the transaction.
▰ Make classification of transaction on the basis of nature of income.
▰ Check taxability as per Domestic Law.

▰ Check taxability as per DTAA along with availability of TRC/Form 10F and no PE
certificate.

▰ Also check the website of the supplier to get additional details about their Indian
operations if any.
▰ Check the rates of TDS applicable & Exchange rate.
▰ Form 15CA/15CB -Whatever applicable
▰ Remit the amount.
Relief from Income earned outside India by Resident

Income chargeable to tax

in India and other state

India has Double Tax India is not having Double

Avoidance Agreement with Tax Avoidance
that country Agreement with that
(Bilateral Relief) country (Unilateral Relief)

U/s 90 (Agreements U/s 90A (Agreement

U/s 91 of Income
exist between two entered between
Tax Act
government) specified
organisation)
Section 90/91 of the Income Tax Act:

▰ Section 90
Sub section 2 - The provision of DTAA or Income tax shall apply whichever is more
beneficial to the assessee.

Sub section 4 - to claim relief from double taxation is to provide Tax Residency certificate
(TRC) of the country where he/ she is a resident and if the TRC is in foreign language or is
not providing all the information as required in Form 10F is assessee will also have to file
Form 10F to claim relief.Thus if one wish to claim relief and take benefit of DTAA TRC is
the most important thing.
▰ Section 91 - Credit method - At Indian rate of tax or foreign rate of tax, whichever is
lower
Form No. 67 - Foreign Tax credit

▰ Form 67, which needs to filed by the assessee online when he needs
to claim credit of tax whether u/s 90/ 90A/ 91. This needs to be filed
by the assessee to take foreign tax credit in the year in which he
offers corresponding income to tax in India.
▰ Form 67 shall be available to all the assessee’s login. The assessee
is required to login into the e-filing portal. Then under E-file drop
down assessee needs to select Prepare and submit online Forms
(Other than ITR). Select Form 67 from the drop down and the
instructions to fill the same would also be available there.
 TRANSFER PRICING
Transfer pricing can be defined as the value which is attached
to the goods or services transferred between related parties. In
other words, transfer pricing is the price that is paid for goods
or services transferred from one unit of an organization to its
other units situated in different countries (with exceptions).
Transactions between related parties should observe the arm's
length principle. As such, prices charged in related party
transactions should not differ from prices charged in third party
transactions under comparable circumstances (market value).
 TRANSFER PRICING AND ARM’S LENGTH PRICE
When you look at countries around the world, you can see huge differences in
tax rates. If left unchecked, Multinational Enterprises (MNEs) could shift profits
from high-tax countries to low-tax countries. How?
Well, MNEs always have internal transactions. A regional head-quarter
invoicing management and service fees. A holding company providing
financing to an operational company. A manufacturing branch supplying
finisheds product to a distributing branch. MNEs are able to control the terms
and conditions of these transactions. They can set the price, so to speak. This
way, they can influence taxable profit and the amount of tax due.
To prevent this from happening, tax administrations have invented the arm’s
length principle. This principles requires that controlled transactions are done
at market rates.
 ARM’S LENGTH PRINCIPLE
The arm's length principle (ALP) is the condition
or the fact that the parties of a transaction are
independent and on an equal footing.
The Arm's Length Principle requires that related
companies agree on their transactions as
unrelated companies would in comparable
circumstances.
 Reference to Transfer Pricing Officer
Section 92CA. (1) Where any person, being the assessee,
has entered into an international transaction or specified
domestic transaction in any previous year, and the Assessing
Officer considers it necessary or expedient so to do, he may,
with the previous approval of the Principal Commissioner or
Commissioner, refer the computation of the arm's length
price in relation to the said international transaction or
specified domestic transaction under Section 92C to the
Transfer Pricing Officer.
 QUIZ
Q.No.1. Form to be filed for claiming Foreign Tax credit is ?
Form No. 65,66,67,68
Q.No.2. Normally, Resident and Ordinarily Resident (R&OR is that
person who is present in India in that tax year for a period totaling how
many days or more:
60, 120, 182, 183
Q.No.3. Income accruing from agriculture in a foreign country is taxable
in India in case of an assessee who is:
(a) NR (b) RNOR (c) None (d) ROR
Q.No.4. A person present in India for 60 days to 181 days during the
Previous Year will be considered as Resident and Ordinarily Resident
(R&OR), if he/she was present in India totaling how many days or more
during the preceding four years:
182, 183, 365, 729

Q.No.5. DTAAs can be either:

Developed or Developing,
Comprehensive or Limited,
Real or Artificial,
Initial or Final
Q.No.6. Which section has the deeming provision regarding Income
deemed to accrue or arise in India:
Section 7, 8, 9, 10
Q.No.7. The most relevant Section of Income Tax Act for TDS on
payment to Non resident is:
Section 192, 193, 194, 195
Q.No.8. Income received in India during the previous year is taxable in
the case of .
(a) ROR (b) RNOR (c) NR (d) All
Q.No. 9. Income which accrues or arises outside India & also received
outside India is taxable in case of .
(a) ROR &RNOR (b) RNOR (c) NR (d) ROR

Q.No.10. Which Income is taxable in India to RNOR Individual?

(a) Business income accruing outside India
(b) Property income accruing outside India
(c) Interest income accruing outside India
(d) Income accruing outside India if it is derived from a business
controlled in India

Q.No.11. Which is the pair of sections of Income Tax Act applicable for
Tax Relief from Income earned outside India by a Resident:
Sections 87/88, 89/90, 90/91, 90/92
 C’est tout.
Merci beaucoup !
+91-8902199115

jkpchaudhary@gmail.com