A 2013 study by Business Europe indicates that double taxation remains a problem for European multinationals and a barrier to cross-border trade and investment. [9] [10] The particular problems are the restriction of interest deductibility, foreign tax credits, permanent establishment issues and different reservations or interpretations. Germany and Italy were identified as the Member States with the highest number of double taxation cases. The revised double taxation agreement between India and Cyprus, signed on 18 November 2016, provides for withholding tax on capital gains from the sale of shares instead of residence-based taxation under the double taxation agreement signed in 1994 for the avoidance of double taxation. For investments made before 1. However, a grandfathering clause was introduced in April 2017, for which capital gains would continue to be taxed in the country where the taxpayer is resident. It also provides for support between the two countries in the collection of taxes and updates the provisions for the exchange of information according to recognized international standards. There are two types of double taxation: judicial double taxation and economic double taxation. In the first case, if the source rule overlaps, the tax is levied by two or more countries in accordance with their national law in respect of the same transaction, the income arises or is considered to arise from their respective jurisdictions. In the latter case, double taxation occurs when the same turnover, income or rich assets are taxed in two or more states, but in the hands of another person. [1] In the event of a conflict between the provisions of the Income Tax Act or the Double Taxation Convention, the provisions of the latter shall prevail.
A tax treaty is a bilateral (bipartite) agreement concluded by two countries to solve problems related to the double taxation of passive and active income of each of their respective citizens. Income tax treaties generally determine the amount of tax a country can apply to a taxpayer`s income, capital, estate or assets. A tax treaty is also known as a double taxation agreement (DTA). In recent years, the development of foreign investment by Chinese companies has grown rapidly and become highly influential. Thus, dealing with cross-border tax issues is becoming one of China`s most important financial and trade projects, and cross-border taxation issues continue to worsen. To solve problems, multilateral tax treaties are concluded between countries, which can provide legal support to help businesses on both sides avoid double taxation and tax solutions. In order to implement China`s “Going Global” strategy and help domestic enterprises adapt to the situation of globalization, China has made efforts to promote and sign multilateral tax treaties with other countries in order to realize common interests. By the end of November 2016, China had officially signed 102 double taxation treaties to avoid double taxation. Of these, 98 agreements have already entered into force. In addition, China has signed a double taxation avoidance agreement with Hong Kong and the Macao Special Administrative Region. China also signed a double taxation agreement with Taiwan in August 2015 to avoid double taxation, which has not yet entered into force.
According to the Chinese tax administration, the first double taxation agreement was signed with Japan in September 1983 to avoid double taxation. The most recent agreement was signed with Cambodia in October 2016. As for the state-disrupting situation, China would continue the agreement signed after the disruption. For example, in June 1987, China signed for the first time a double taxation agreement with the Socialist Republic of Czechoslovakia. In 1990, Czechoslovakia split into two countries, the Czech Republic and the Slovak Republic, and the original agreement signed with the Czechoslovak Socialist Republic was continuously applied in two new countries. In August 2009, China signed the new agreement with the Czech Republic. And as for the particular case of Germany, China continued to use the agreement with the Federal Republic of Germany after the reunification of two Germanys. China has signed a double taxation agreement with many countries to avoid double taxation. Among them, there are not only countries that have made significant investments in China, but also countries that are well-related beneficiaries of Chinese investments. As for the amount of the agreement, China is now only the United Kingdom. For countries that have not signed double taxation treaties with China, some of them have signed information exchange agreements with China. [20] Double taxation is the collection of taxes by two or more countries and territories on the same income (in the case of income tax), assets (in the case of capital tax) or financial transactions (in the case of sales taxes).
Example of the benefit of a double tax avoidance agreement: Suppose that interest on NRI bank deposits results in a 30% tax deduction at source in India. Since India has signed double taxation treaties with several countries, the tax can only be deducted from 10-15% instead of 30%. What is a double taxation agreement? A person can be a resident of more than one country at the same time. In the European Union, Member States have concluded a multilateral agreement on the exchange of information. [7] This means that they each (to their colleagues in the other jurisdiction) provide a list of persons who have applied for an exemption from local tax because they do not reside in the state where the income is earned. These people would have had to report the foreign income in their own country of residence, so any difference indicates tax evasion. Income tax treaties typically include a clause called a “savings clause,” designed to prevent U.S. residents…