Double Taxation Avoidance Agreement

Clarity on eligibility criteria for funds set up by Category I FPIs for exemption from taxable presence in India

Background

A special  taxation regime, provided under Section 9A of the Income-tax Act, 1961 (“IT Act”), exempts eligible offshore funds, with their fund managers located in India, from treating them as having taxable business presence in India. On satisfaction of the requirements set out in Section 9A of the IT Act, management of the funds through such Indian fund managers would not constitute the offshore fund’s ‘business connection’ in India. It is important to note that when an offshore fund, satisfying these conditions is not taxable in India on its business income under the domestic law, then the question of it not having permanent establishment under the applicable double taxation avoidance agreement (“DTAA”) becomes moot. Additionally, Section 9A also excludes an eligible investment fund from being treated as resident in India for tax purposes under the provision of ‘Place of Effective Management’ when the eligible fund manager undertakes fund management activities while situated in India.
Continue Reading Clarity on eligibility criteria for funds set up by Category I FPIs for exemption from taxable presence in India

dual residence tax for Non Residential Indians NRIs

The concept of dual residence crucially affects taxation of non-resident Indians and individuals who travel frequently between India and other countries. India follows a residence-based taxation system for residents, i.e., an Indian resident is taxed on his global income. A non-resident is taxed on income which is sourced or accrued or received in India.

However, the confusion arises when an individual leaves the country and starts residing in another country under the laws of which he also becomes a resident in that other country in that year. Thus, the individual may become a ‘dual resident’ for tax purposes. Taxation of dual residents is resolved either under local laws or when there is a Double Taxation Avoidance Agreement (DTAA) executed between the two jurisdictions of which they are residents, through application of the tie breaker clause in the DTAA.
Continue Reading The Dilemma of Dual Residence – Can Vital Interests Fluctuate Overnight?

With globalisation spreading economic activities across jurisdictions, enterprises nowadays have a presence in several jurisdictions. The taxability of activities undertaken by companies on foreign soil is closely linked to whether they are conducted through a permanent establishment (PE). This is a concept widely used in the context of international taxation wherein a particular business transaction leaves its footprint in multiple jurisdictions. Under the terms of various tax treaties, existence of a PE in the source State is a pre-requisite to hold a non-resident liable to pay taxes on business profits. The term PE is generally defined in the tax treaties as “a fixed place of business through which the business of a foreign enterprise is carried on wholly or in part”.

Under the various tax treaties executed with other countries, India imposes tax on any business income accruing or arising to a non-resident, whether directly or indirectly through or from any PE in India.


Continue Reading Formula One: SC Lays Down the Formula for Permanent Establishment