In the latter one, when same transaction, item of income or capital is taxed in two or more states but in hands of different person, double taxation arises.
The stated goals for entering into a treaty often include reduction of double taxation, eliminating tax evasion, and encouraging cross-border trade efficiency.
Because of this, the control of unreasonable tax avoidance of corporations becomes more difficult and it requires more investigation when goods, rights and services are transferred.
The FTC method is used by countries that tax (individual or corporate) residents on income, irrespective of where it arises.
[citation needed] They create more favorable terms for multinational companies to (remain) based in countries that use less effective measures than the EM or FTC method.
[8] This means that they will each report (to their counterparts in each other jurisdiction) a list of those people who have claimed exemption from local taxation on grounds of not being a resident of the state where the income arises.
These people should have declared that foreign income in their own country of residence, so any difference suggests tax evasion.
[9] They may offer each non-resident account holder the choice of taxation arrangements: either (a) disclosure of information as above, or (b) deduction of local tax on savings interest at source as is the case for residents).
A 2013 study by Business Europe says that double taxation remains a problem for European MNEs and an obstacle for cross border trade and investments.
[10][11] In particular, the problematic areas are limitation in interest deductibility, foreign tax credits, permanent establishment issues and diverging qualifications or interpretations.
Different factors such as political and social stability, an educated population, a sophisticated public health and legal system, but most of all the corporate taxation makes the Netherlands a very attractive country of doing business in.
Economic double taxation relief is available with regard to proceeds from substantial equity investments under the participation.
Juridical double taxation relief is available for resident taxpayers having foreign source income items.
[14] Hungary is unique as it is the only non-developing country (the other, developing country being Eritrea, at a flat 2%) that considers all of its citizens tax residents, and provides no personal allowance (such as the US foreign earned income exclusion) – income is taxed from the first penny earned.
Example of double taxation avoidance agreement benefit: Suppose interest on NRI[clarification needed] bank deposits attracts 30 per cent tax deduction at source in India.
Since India has signed double taxation avoidance agreements with several countries, tax may be deducted at only 10 to 15 per cent instead of 30%.
A large number of foreign institutional investors who trade on the Indian stock markets operate from Singapore and the second being Mauritius.
The Protocol for amendment of the India-Mauritius Convention signed on 10 May 2016, provides for source-based taxation of capital gains arising from alienation of shares acquired from 1 April 2017 in a company resident in India.
Simultaneously, investments made before 1 April 2017 have been grandfathered and will not be subject to capital gains taxation in India.
Taxation in India at full domestic tax rate will take place from financial year 2019–20 onwards.
However, a grandfathering clause has been provided for investments made prior to 1 April 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident.
It also provides for assistance between the two countries for collection of taxes and updates the provisions related to Exchange of Information to accepted international standards.
The Third Protocol amends the agreement with effect from 1 April 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company.
In order to provide certainty to investors, investments in shares made before 1 April 2017 have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol.
The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases.
This is a taxpayer friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases.
To fulfill the "going global" strategy of China and support the domestic enterprises to adapt to the globalization situation, China has been making efforts on promoting and signing multilateral tax treaties with other countries to achieve mutual interests.
In addition, China signed double taxation avoidance arrangement with Hong Kong and Macau Special Administrative Region.
China also signed double taxation avoidance agreement with Taiwan in August 2015, which has not entered into force yet.
For example, China first signed double taxation avoidance agreement with Czechoslovakia Socialist Republic in June 1987.