What is Double Taxation Avoidance Agreement (DTAA) ?
A DTAA, also known as double taxation avoidance agreement, is an agreement entered into between two countries, to ensure that the same income does not suffer, double taxation in the countries, who entered into such an agreement. A DTAA it’s sometimes also referred to as Tax Treaty .
Why are DTAA relevant ?
DTAA are relevant because they help in reducing cases of double taxation of same income, thereby facilitating movement of capital, people and finance across countries, and promoting international trade and development.
In order to enable various countries, to enter into DTAA, which are standardised to some extent, Organization for Economic Cooperation and Development (OECD) and the United Nations (UN) have developed certain Model tax Treaties (DTAA) , which various countries can take as a starting point for negotiations between themselves and other countries.
Are Double Taxation Avoidance Agreement (DTAA) drafts Legally binding ?
While DTAA drafts are not legally binding, they have been extensively used by various countries to enter into tax Treaties. In some cases, they have been incorporated verbatim with minor changes, while in other cases, countries have made suitable changes in the draft model according to their economic environment and commercial and tax considerations. While there have been many steps taken by OECD in recent years to amend the Model Treaty to bring parity in consideration of interest of developing and developed countries alike, traditionally the view point is that the OECD Model favors provisions which are beneficial to its members, who are mostly developed countries. As against this, the UN model has been believed to bring balance between the developed and the developing countries. The US model convention is used by the United States while entering into tax Treaties with various countries.
What are the various clauses of Double Taxation Avoidance Agreement (DTAA) ?
Various clauses of DTAA as per the Organisation for Economic Cooperation and Development (“OECD”) Model Convention, 2017 and United Nations (“UN”) Model Convention, 2017 are as under . Generally, most of the DTAA entered into by countries would follow the same pattern.
| Article of the DTAA | Organisation for Economic Cooperation and Development (“OECD”) Model Convention, 2017 | United Nations (“UN”) Model Convention, 2017 |
| 1 | Persons covered | Persons covered |
| 2 | Taxes covered | Taxes covered |
| 3 | General Definitions | General definitions |
| 4 | Resident | Resident |
| 5 | Permanent establishment | Permanent establishment |
| 6 | Income from immovable property | Income from immovable property |
| 7 | Business profits | Business profits |
| 8 | International shipping and air transport | International shipping and air transport (Alternative A & B) |
| 9 | Associated enterprises | Associated enterprises |
| 10 | Dividends | Dividends |
| 11 | Interest | Interest |
| 12 | Royalties | Royalties |
| 12A | Fees for technical services | |
| 13 | Capital gains | Capital gains |
| 14 | Independent personal services | |
| 15 | Income from employment | Dependent personal services |
| 16 | Directors’ fees | Directors’ fees and remuneration of top-level managerial officials |
| 17 | Entertainers and sportspersons | Artists and sportspersons |
| 18 | Pensions | Pensions and social security payments (Alternative A & B) |
| 19 | Government service | Government service |
| 20 | Students | Students |
| 21 | Other income | Other income |
| 22 | Capital | Capital |
| 23A | Exemption method | Exemption method |
| 23B | Credit method | Credit method |
| 24 | Non-discrimination | Non-discrimination |
| 25 | Mutual agreement procedure | Mutual agreement procedure (Alternative A & B) |
| 26 | Exchange of information | Exchange of information |
| 27 | Assistance in the collection of taxes | Assistance in the collection of taxes |
| 28 | Members of diplomatic missions and consular posts | Members of diplomatic missions and consular posts |
| 29 | Entitlement to benefits | Entitlement to benefits |
| 30 | Territorial extension | Entry into force |
| 31 | Entry into force | Termination |
| 32 | Termination |
If you want to understand more about each of the above Article of the DTAA, you can subscribe to our International Tax Course .
Which countries have DTAA with India ?
A list of countries with which India has entered into Double Taxation agreement can be found on the official website of the income tax department. This list is updated from time to time.
The explanation and text of some of the key DTAA can also be found on our website : –
- India Singapore DTAA
- India USA DTAA
- India Netherlands DTAA
