Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: ACCOUNTING STANDARD :: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company :: VAT RATES :: TDS :: form 3cd :: VAT Audit :: due date for vat payment :: empanelment :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: TAX RATES - GOODS TAXABLE @ 4% :: cpt
« News Headlines »
 Want To File Revised Income Tax Return? Or File Belated Return? 5 Things To Know
 Deadline for filing revised or belated income tax return for past two assessment years is March 31
 Quarterly GST returns filing may be extended to all companies
 How many times one can revise tax returns?
 Income tax exemption for FY19
 How will the new provisions really work?
 How to save income tax? Best tips for young earners
 Forgot to verify your income tax return? Here's help
 Notification of Government e-Marketplace (GeM) under section 138 of the Income-tax Act
 Income tax returns can be filed even if you missed deadline
 What is the difference between a tax return and a tax refund?

Triangular taxation: Concept & challenges
May, 15th 2007
Complex cross-border taxation represents one among several challenges triggered by globalisation today. The vexed issue of triangular cases, in particular, has drawn considerable attention over the last two decades but remains largely unresolved.

The term triangular cases refers to situations involving applicability of tax treaties where tax incidence on a particular stream of income is typically triggered in three countries.

Illustratively, let us assume that a company that is resident in India (ICo) establishes a branch in the UK and such branch earns income from Japan. The above situation could possibly trigger tax implications for ICo in all three countries, ie India, the UK and Japan. ICo would be taxable in India on its global income (including income earned by its UK branch), the UK would tax income accruing to the branch and Japan may levy a withholding tax on payments to the branch in the UK.

As the same income could be taxed in three countries, the related issue that needs to be addressed is how tax credit/exemption mechanisms should work to avoid triangular taxation.

As India taxes its residents on their worldwide income in the illustration above, ICo would be principally liable to tax in India on the branch income earned in the UK. However, India would grant credit for taxes paid by the branch (not exceeding the taxes payable in India on the branch income).

In the instant case, if both Japan and the UK levy tax on the branch income, an incremental layer of unrecoverable taxes would be triggered, unless tax exemption or credit mechanisms are in play. The moot point therefore is how should tax treaties facilitate credit for taxes paid in Japan.

One option is that the residence Article in the UK-Japan treaty could be amended to extend benefits of residency (and, hence, treaty access) even to a permanent establishment (PE) in the UK of a resident of a third country (India in this case) which earns income from Japan. The treaty could either provide for tax credit in India of taxes paid in Japan, or an exemption of tax in the UK on the income earned by the branch. The controversy, however, is whether a bilateral agreement between the UK and Japan can eliminate double taxation for a third country, ie India.

In view of the above, it could be provided in the India-Japan treaty that credit should be available for taxes paid by ICo overseas (including countries where PEs of ICo are situated). Alternatively, it could also be provided in the India-UK treaty that taxes paid for credit purposes in India should include tax credits claimed in the UK (ie taxes withheld at source in Japan).

Other issues that need to be addressed include the procedure and endorsements for claim of credit by India, the UK and Japan and, also, availability of credit in India for taxes paid in Japan (especially when the UK exempts such income from taxes).

Tax courts in several developed countries have been pronouncing decisions in a triangular scenario. In a landmark EU judgment, the European Court of Justice (ECJ) observed that the refusal of Germany to grant tax concessions either by exempting tax or allowing credit for overseas taxes paid on foreign sourced dividends earned by a PE would mean differential treatment of a PE vis-a`-vis a domestic corporation and, therefore, be regarded as an infringement of the European Community tax treaty. Interestingly, in another case, the Dutch Supreme Court disallowed tax credit on royalty income earned in Japan by a Swiss PE of the Dutch Co, given that the Netherlands-Japan treaty only provided a credit for tax on income of the Dutch Co in Japan, not earned through an overseas PE.

Potential solutions to address triangular cases have been in circulation. There is a need for concrete and updated guidelines which would enable decisions on cross-border business models to be taken with more certainty. Speedy amendments to tax treaties addressing triangular cases would also be welcome.

(The author is national director of tax & partner, Ernst & Young India)
Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Integrated Software Solutions Integrated Software Development Integrated Software Services Integrated Software Solutions India Integrated Softw

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions