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MCQ on Interpretation of Tax Treaties – International Taxation

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June 11, 2022

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34 mins read

Interpretation of Tax Treaties MCQ International Taxation are covered in this Article. Interpretation of Tax Treaties MCQ Test contains 42 questions. Answers to MCQ on Interpretation of Tax Treaties are available after clicking on the answer.

1.    Choose multilateral international agreement from the following :-

a)    Vienna Convention on law of treaties
b)    Double Taxation Avoidance Agreement between US and UK
c)    Tax information exchange agreement between India and Cayman Island
d)    All of the above

Answer

Answer: a)    Vienna Convention on law of treaties


 

2.    What is jurisdictional double taxation?

a)    It takes place, when same transaction is taxed in two or more countries in the hands of different persons.
b)    It takes place, when tax is imposed by two or more countries, as per their domestic laws, in respect of the same transaction, on the ground that income arises in their respective jurisdictions.
c)    Both A and B
d)    None of the above

Answer

Answer: b)    It takes place, when tax is imposed by two or more countries, as per their domestic laws, in respect of the same transaction, on the ground that income arises in their respective jurisdictions.


 

3.    What is economic double taxation?

a)    It takes place, when same transaction is taxed in two or more countries in the hands of different persons.
b)    It takes place, when tax is imposed by two or more countries, as per their domestic laws, in respect of the same transaction, on the ground that income arises in their respective jurisdictions.
c)    Both A and B
d)    None of the above

Answer

Answer: a)    It takes place, when same transaction is taxed in two or more countries in the hands of different persons.


 

4.    JCO Inc. is a resident of USA, and has a branch in India. If India taxes the profit of branch, whereas JCO Inc. is also taxable on its worldwide income in USA, including profits of its Indian branch, it would be a case of ………………….

a)    Economic Double Taxation
b)    Jurisdictional Double Taxation
c)    Both A and B
d)    None of the above

Answer

Answer: b)    Jurisdictional Double Taxation


 

5.    Dividend distributed by the Indian company is liable to Dividend Distribution Tax in the hands of Indian company, while the country of residence may tax it in the hands of shareholders. It would be a case of ………………….

a)    Economic double taxation
b)    Jurisdictional double taxation
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Economic double taxation


 

6.    Which of the following treaty is comprehensive DTAA?

a)    India-Afghanistan DTAA, which has limited Article
b)    India-Pakistan DTAA, which taxes certain income
c)    India-Germany DTAA which deal with all income
d)    All of the above

Answer

Answer: c)    India-Germany DTAA which deal with all income


 

7.    Which of the following treaty would be considered as Limited DTAA?

a)    India-Afghanistan DTAA, which has limited Article
b)    India-Pakistan DTAA, which taxes certain income
c)    India-Singapore DTAA
d)    Both A and B

Answer

Answer: d)    Both A and B


 

8.    Select the correct statement from the following?

a)    The Vienna Convention on Law of Treaties provides the basic rules of interpretation, of any international agreement (including a tax Treaty).
b)    India is a signatory to Vienna Convention
c)    It is mandatory for Indian Courts to apply principles given in Vienna Convention while interpreting tax treaties
d)    None of the above

Answer

Answer: a)    The Vienna Convention on Law of Treaties provides the basic rules of interpretation, of any international agreement (including a tax Treaty).


 

9.    Which of the following articles of Vienna Convention provide for detailed rules of interpretation of tax treaties?

a)    Article 31
b)    Article 32
c)    Article 33
d)    All of the above

Answer

Answer: d)    All of the above


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10. What is the principle enshrined in Article 31 of Vienna Convention?

a)    Meaning of any term used in treaty should be taken from domestic laws of source state if its meaning is not provided in such treaty
b)     A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to terms of the Treaty in their context and in the light of its object and purpose
c)    Treaty shall not override the provisions of domestic tax laws of Source State
d)    All of the above

Answer

Answer: b)     A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to terms of the Treaty in their context and in the light of its object and purpose


 

MCQ on Interpretation of Tax Treaties – International Taxation

11. What is the principle enshrined in Article 32 of Vienna Convention?

a)    Meaning of any term used in treaty should be taken from domestic laws of source state if its meaning is not provided in such treaty
b)    Where Vienna Convention Article 31 interpretation leaves ambiguous or absurd result, one can take recourse to supplementary means of interpretation, including the preparatory work of the Treaty and the circumstances of its conclusion.
c)    Treaty shall not override the provisions of domestic tax laws of Source State
d)    None of the above

Answer

Answer: b)    Where Vienna Convention Article 31 interpretation leaves ambiguous or absurd result, one can take recourse to supplementary means of interpretation, including the preparatory work of the Treaty and the circumstances of its conclusion.


 

12. What is the principle enshrined in Article 33 of Vienna Convention?

a)    Meaning of any term used in treaty should be taken from domestic laws of source state if its meaning is not provided in such treaty
b)    Treaty shall not override the provisions of domestic tax laws of Source State
c)    If a Treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the Treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.
d)    None of the above

Answer

Answer: c)    If a Treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the Treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.


 

13. What would be considered as Most Favoured Nation Clause from the following :-

a)    When passive income in tax treaty is taxable at concessional rate or is given more restricted scope, with one Country due to favourable treatment in subsequent tax treaties with third countries
b)    When income of foreign company is taxable at a rate less than the rate which is provided in all other tax treaties
c)    When make available clause is not provided in tax treaties
d)    None of the above

Answer

Answer: a)    When passive income in tax treaty is taxable at concessional rate or is given more restricted scope, with one Country due to favourable treatment in subsequent tax treaties with third countries


 

14. Select the correct statement :-

a)    Every Treaty, which is in force, is not binding upon the parties to the Treaty, and it not mandatory for them to follow the Treaty, in good faith
b)    Failure to perform obligations under a Treaty, cannot be justified by a Treaty country, by invoking the provisions of its internal law
c)    Both A and B
d)    None of the above

Answer

Answer: b)    Failure to perform obligations under a Treaty, cannot be justified by a Treaty country, by invoking the provisions of its internal law


 

15. What would be considered as treaty override?

a)    When taxability of non-resident is determined as per lesser rate of tax in Tax Treaty than the rate provided in Income Tax Act, 1961
b)    When provisions of tax treaty would be applicable even if provisions of Income-Tax Act are beneficial
c)    When non-resident is not eligible to get benefit of tax treaty
d)    None of the above

Answer

Answer: a)    When taxability of non-resident is determined as per lesser rate of tax in Tax Treaty than the rate provided in Income Tax Act, 1961


 

16. Select the correct Statement as per Vienna Convention

a)    Treaty provisions do not bind a party to a Treaty, in relation to any act or fact which took place before the date of the Entry into force of the Treaty
b)    Treaty provisions do not bind a party to a Treaty, in relation to any act or fact which took place after the date of the Entry into force of the Treaty
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Treaty provisions do not bind a party to a Treaty, in relation to any act or fact which took place before the date of the Entry into force of the Treaty


 

17. As per the Vienna Convention, when parties enter into successive treaties, relating to the same subject-matter then……………

a)    The provisions of later treaty would prevail, when old treaty specifies that it is subject to later Treaty
b)    When all the parties to the earlier Treaty are also parties to the later Treaty but earlier Treaty is not terminated or suspended, the earlier Treaty applies only to the extent that its provisions are compatible with those of the later Treaty.
c)    The provisions of old treaty would prevail when old treaty specifies that it is subject to later Treaty
d)    Both A and B

Answer

Answer: d)    Both A and B


 

18. Sometimes parties to the Treaty subject themselves to provisions of other tax treaties that may be entered at a later date. In such cases the provisions of that later Treaty shall prevail. Such condition is imposed by insertion of …………………in tax treaties

a)    Limitation of Benefit Clause
b)    Make available clause
c)    Most Favoured Nation Clause
d)    None of the above

Answer

Answer: c)    Most Favoured Nation Clause


 

19. Which of the following would be considered as material breach of treaty as per Vienna Convention?

a)    Repudiation of the Treaty not sanctioned by the Convention
b)    Violating a provision essential to accomplishment of the object of the Treaty
c)    Denial of treaty benefit to a party in absence of Tax Residency Certificate
d)    Both A and B

Answer

Answer: d)    Both A and B


 

20. What are the rights of the parties in case of material breach of treaty as per Vienna Convention?

a)    Party specially affected by the breach can suspend operation of the Treaty between itself and the defaulting State
b)    Other parties cannot suspend the operation of the Treaty with defaulting State, even by unanimous agreement
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Party specially affected by the breach can suspend operation of the Treaty between itself and the defaulting State


 

MCQ on Interpretation of Tax Treaties – International Taxation

21. When does a fundamental change of circumstances, not foreseen by parties at the time of the conclusion of a Treaty may be considered as a ground for terminating or withdrawing from treaty?

a)    When such change radically transforms the extent of existing obligations under the Treaty
b)    When such change brings minor changes in the extent of obligations to be performed under the Treaty
c)    Where the existence of those circumstances constituted an essential basis of the consent of the parties to be bound by the Treaty
d)    Both A and C

Answer

Answer: d)    Both A and C


 

22. What is a peremptory norm?

a)    It is a norm which is widely used to interpret tax treaties
b)    It is a fundamental principle of international law, from which deviation is permitted
c)    It is a fundamental principle of international law accepted by international community of states, from which no deviation is permitted
d)    None of the above

Answer

Answer: c)    It is a fundamental principle of international law accepted by international community of states, from which no deviation is permitted


 

23. Though Indian tax treaties provide both Hindi and English as authentic texts, in case of divergence……………………… as per Treaties

a)    There is an option to choose either text in English or text in Hindi
b)    The text in Hindi shall prevail
c)    The text in English shall prevail
d)    None of the above

Answer

Answer: c)    The text in English shall prevail


 

24. What is Tax Information Exchange Agreement (‘TIEA’)?

a)    It is a type of comprehensive tax treaty
b)    TIEAs are more detailed agreement on exchange of information than DTAAs, and specify the rules and procedures for how such information is to be exchanged
c)    TIEAs are much broader in scope than DTAA
d)    All of the above

Answer

Answer: b)    TIEAs are more detailed agreement on exchange of information than DTAAs, and specify the rules and procedures for how such information is to be exchanged


 

25. Select the correct statement

a)    Generally, information provided under TIEA will have to be treated as secret, and disclosed only to authorities concerned with determination of tax appeal
b)    Requested information under TIEA cannot be provided when other party need such information for its own tax purposes
c)    Both A and B
d)    Once received, information under TIEA can be used for any purpose and disclosed under any law to anyone.

Answer

Answer: a)    Generally, information provided under TIEA will have to be treated as secret, and disclosed only to authorities concerned with determination of tax appeal


 

26. What would be considered as monist view in interpretation of treaties under Vienna Convention?

a)    International law and domestic law are part of same system and DTAA override domestic law
b)    International Law and National Law are separate systems, and DTAA becomes part of the National Legal system by specific incorporation / legislation
c)    Wherein amendment in domestic provisions would override the existing DTAA
d)    None of the above

Answer

Answer: a)    International law and domestic law are part of same system and DTAA override domestic law


 

27. What would be considered as dualistic view in interpretation of treaties under Vienna Convention?

a)    International law and domestic law are part of same system and DTAA override domestic law
b)    International Law and National Law are separate systems, and DTAA becomes part of the National Legal system by specific incorporation / legislation
c)    Wherein amendment in domestic provisions would override the existing DTAA
d)    None of the above

Answer

Answer: b)    International Law and National Law are separate systems, and DTAA becomes part of the National Legal system by specific incorporation / legislation


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28.  India follow ______________ view of interpretation.

a)    Monist
b)    Dualist
c)    Monist or Dualist
d)    Monist and Dualist

Answer

Answer: a)    Monist


 

29. In case of payments to non-residents, which of the following tax rate would be considered?

a)    Tax rate under DTAA
b)    Tax rate under Income-Tax Act
c)    A or B, whichever is more beneficial
d)    None of the above

Answer

Answer: c)    A or B, whichever is more beneficial


 

30. Which of the provision would apply to non-resident in case of existence of GAAR in that Country and where GAAR is applicable on a particular transaction?

a)    Provisions of DTAA
b)    Provisions of Income-Tax Act
c)    A or B, whichever is more beneficial
d)    Provisions of GAAR shall apply to the assessee, even if such provisions are not beneficial to him as compared to Income Tax Act or DTAA

Answer

Answer: d)    Provisions of GAAR shall apply to the assessee, even if such provisions are not beneficial to him as compared to Income Tax Act or DTAA


 

MCQ on Interpretation of Tax Treaties – International Taxation

31. Which of would be considered as territorial tax system?

a)    Wherein tax is levied only on income from sources inside the country
b)    Wherein tax is levied on global income of residents
c)    Wherein tax is levied on non-residents deriving income from source outside the country
d)    None of the above

Answer

Answer: a)    Wherein tax is levied only on income from sources inside the country


 

32. Which of the following would be considered as objective interpretation of tax treaty?

a)    Terms of a treaty are interpreted to facilitate attainment of aim and objectives of the treaty
b)    Words and phrases used in Treaty are firstly to be construed according to their plain and natural meaning. However, if the grammatical interpretation would result in an absurdity it should not be adopted.
c)    The Terms of a treaty are interpreted according to the common intention of the contracting parties at the time of entering into the treaty
d)    None of the above

Answer

Answer: b)    Words and phrases used in Treaty are firstly to be construed according to their plain and natural meaning. However, if the grammatical interpretation would result in an absurdity it should not be adopted.


 

33. Which of the following would be considered as subjective interpretation of tax treaty?

a)    Terms of a treaty are interpreted to facilitate attainment of aim and objectives of the treaty
b)    Words and phrases used in Treaty are firstly to be construed according to their plain and natural meaning. However, if the grammatical interpretation would result in an absurdity it should not be adopted.
c)    The Terms of a treaty are interpreted according to the common intention of the contracting parties at the time of entering into the treaty
d)    None of the above

Answer

Answer: c)    The Terms of a treaty are interpreted according to the common intention of the contracting parties at the time of entering into the treaty


 

34. Which of the following would be considered as Liberal construction of tax treaty?

a)    Words and phrases used in Treaty to be construed according to their plain and natural meaning.
b)    Treaties shall be liberally construed to carry out the apparent intention of the parties.
c)    Treaties should be given an interpretation in which the reasonable meaning of words and phrases is preferred, and in which a consistent meaning is given to different portions of the instrument.
d)    None of the above

Answer

Answer: b)    Treaties shall be liberally construed to carry out the apparent intention of the parties.


 

35. What do you understand by Protocol to tax treaty?

a)    It is not a part of tax treaty and it merely provides clarifications on certain issues
b)    It is a supplement to the treaty, but an integral part of the Treaty which is incorporated in a treaty to put certain matters beyond doubt.
c)    It contains definition of terms used in tax treaties
d)    None of the above

Answer

Answer: b)    It is a supplement to the treaty, but an integral part of the Treaty which is incorporated in a treaty to put certain matters beyond doubt.


 

36. What is the purpose of introducing Protocol in tax treaty?

a)    To define terms used in DTAA
b)    To revise entire DTAA
c)    To introduce amendments in tax treaties to specific clauses or provides additional paragraphs
d)    None of the above

Answer

Answer: c)    To introduce amendments in tax treaties to specific clauses or provides additional paragraphs


 

37. What is the role of preamble in tax treaty?

a)    It provides meaning of terms used in tax treaties
b)    It contains Most Favoured Nation Clause
c)    It is the opening statement to the Tax Treaty and explains the reasons why the Two States entered into the Treaty
d)    None of the above

Answer

Answer: c)    It is the opening statement to the Tax Treaty and explains the reasons why the Two States entered into the Treaty


 

38. Which of the following are Commentaries on Treaty :-

a)    OECD
b)    US
c)    UN
d)    All of the above

Answer

Answer: d)    All of the above


 

39. _______ Commentary is by and large based on ________ Commentary –

a)    OECD ; UN
b)    UN ; OECD
c)    US ; UN
d)    US ; OECD

Answer

Answer: b)    UN ; OECD


 

40. OECD Commentary is directly applicable to …………..

a)    India
b)    OECD Countries
c)    Both A and B
d)    None of the above

Answer

Answer: b)    OECD Countries


 

MCQ on Interpretation of Tax Treaties – International Taxation

 41. Which of the following could be considered as static interpretation of tax treaty?

a)    Where a treaty refers to the provision of the domestic laws for assigning meaning to a particular term, and subsequently the domestic law is changed, and the meaning prevailing in the domestic law of the contracting state at the date of signing the treaty is applied
b)    Where a treaty refers to the provision of the domestic laws for assigning meaning to a particular term, and subsequently the domestic law is changed, and the meaning prevailing in the domestic law of the contracting state on the date of application of the treaty is applied
c)    Both A and B
d)    None of the above

Answer

Answer: a)    Where a treaty refers to the provision of the domestic laws for assigning meaning to a particular term, and subsequently the domestic law is changed, and the meaning prevailing in the domestic law of the contracting state at the date of signing the treaty is applied


 

42. Terms not defined in DTAA, but defined in the Act, would be assigned the meaning given in the ……………………….

a)    Income-Tax Act
b)    General Clauses Act
c)    Any other Act
d)    None of the above

Answer

Answer: a)    Income-Tax Act


 

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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