Friday, March 1, 2013

Tax Information Exchange Agreement (TIEA)
**According to the agreement, based on the international standard of transparency and exchange of information, information must be foreseeably relevant to the administration and enforcement of the domestic laws of the Contracting Parties concerning taxes covered by the agreement.

**It also provides for
 tax examination abroad and has specific provisions for providing banking and ownership information.

**The salient features of the agreement also say that the requesting state has
 to provide some minimum details about the information requested in order to justify the foreseeably relevance criteria.

**Information is to be treated as secret and can be disclosed only to specified person or authorities, which are tax authorities or the authorities concerned with the determination of tax appeal, it says.

**It also provides for use of information for non-tax purposes with the
 written consent of the competent authority of the requested party.

**There is a specific provision that the requested party shall provide upon request the information even though that party may not need such information for its own tax purposes.

**The agreement also provides for
 exchange of past information in criminal matters.

**So far India has signed TIEAs with the
 Bahamas, Bermuda, the British Virgin Islands, the Isle of Man, the Cayman Islands, Jersey, Macau, Liberia, Argentina, Guernsey, Bahrain and Monaco and Gibraltar.

What is DTAA (Double Tax Avoidance Agreement)?

  • Basically DTAAs are those pacts that seek to eliminate double taxation of income or gains arising in one country and paid to residents or companies of another. In other words, the treaty is devised to ensure that the same income is not taxed twice. 
  • In a bid to curb the growing menace of black money, the Government of India has written, under revised tax treaties, some countries to freeze the assets of Indians that have not been declared in India and repatriate the money. 
  • The main purpose of such agreements is to evolve a just system of taxation of different types of income in both the state of source and state of residence.
  • Tax treaties such as Double Taxation Avoidance Agreement serve the purpose of providing protection to tax payers against double taxation and thus preventing the discouragement which taxation may provide in the free flow of international trade, international investment and international transfer of technology.

How is DTAA abused and what is round tripping ?

  1. DTAAs are misused when many of the countries with whom we have avoidance agreements do not tax their residents in the manner we do. For example, Mauritius has exempted taxation on capital gains but India imposes. It is important to note that through Mauritius 41.9 per cent of all FDI since 1991 and bulk of the FIIs flows into India. India loses more than $600 million every year in revenues on account of the DTAA with Mauritius, as per some available estimates. India and Mauritius entered into the DTAA way back in 1982 as part of a strategic relationship in response to the US setting up military base in Diego Garcia in the Indian Ocean.

  1. The money going out of India, however, is coming back to India for investments, in what is known as "round-tripping". It has been suspected that round-tripping or routing of Indians' illicit money back into the country through the Mauritius route. But in India still we don't have sound estimates regarding round-tripping exist and for this the network of DTAAs and TIEAs to be strengthened to check such practices. 

  1. It has been suspected that a significant surge in venture capital funds coming from Mauritius in sectors like telecom and real estate, which have been subject matter of close scrutiny for money laundering cases. 

  1. It has been believed that due to growing popular demand to make public of those having money in bank accounts in locations like Switzerland has also led to a large number of entities shifting their illicit wealth to Mauritius with an aim to ultimately route the funds to India.

looking into this aspects ....Govt is now singing  protocol to amend double taxation pact with nations it had DTAA done before...

recently....India and Sweden have signed a protocol to amend the existing double taxation avoidance pact between the two countries.

The amending protocol would pave the way for exchange of banking information, besides providing facility for tax examination in each other's country.
The double taxation avoidance agreement (DTAA) between India and Sweden was first signed on June 24, 1997.
The protocol will replace the Article concerning Exchange of Information in the existing double taxation avoidance pact.
It will allow exchange of banking information as well as information without domestic interest. It will now allow use of information for non-tax purposes if allowed under the domestic laws of both the countries, after the approval of the supplying state.
The protocol will enable both the countries to assist in conducting tax examination abroad by allowing officials of one country to enter the territory of the other for this purpose.

  • both TIEA and DTAA are included under Section 90 of the Income Tax Act which empowers the Government to enter into agreements with other nations !!!!

  • India has comprehensive Double Taxation Avoidance Agreements (DTAA ) with 84 countries ryt now


Q1 ) India and Gibraltar have signed a Tax Information Exchange Agreement (TIEA) that calls for transparent sharing of information among other things. With how many countries have India signed TIEA other than Gibraltar? 
(a) Eleven 
(b) Twelve
(c) Thirteen 
(d) Fourteen

2. As per Double Taxation Avoidance Agreement signed by India with other countries which of the following is correct? 
1.    A businessman who earns profits in the other country must pay taxes in India.
2.  A businessman who operates a ship to the other country must pay taxes on his profits in the other country.
3.  Dividends are taxable both in the country of source and country of residence.
4.  Capital gains from sale of shares is taxable in the country of residence.

3. Which of the following is true in respect of Double Taxation Avoidance Agreements signed by India with different countries from time to time? 
1.    The Government is authorised to do so under the Income Tax Act, 1961
2.  Double Taxation Avoidance Agreement is entered to minimise black money
3.  International Trade gets hampered due to such agreements
4.  None of the above


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