Features of Treaties

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..... ole for availing benefit of tax treaty in case the person is resident of one or both of the contracting States, Country of residence may have full right to taxing the global income of its resident and would grant relief in respect of tax paid in the country of Source. Article 4 of the tax treaty governs the provision of residence. It is to be noted that Article 4 of the tax treaty deals with re .....

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..... y state and has limited connection with the taxpayer. The rights of the source state are sometimes limited (e.g. in case of royalties, interest) or are unconditional or are conditional (e.g. business profits only taxable if PE exists). In some cases, no rights are granted to the Source State and the entire income is taxable in the Residence State. The allocation or distribution of the taxing right .....

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..... for under the domestic tax law. Also, the treaties do not provide for the computation mechanism, the collection and the assessment of taxes and that is left to the discretion of the domestic tax laws of the respective countries. Tax treaties only distribute or assign taxing jurisdiction. It does not impose tax. Ex If any income is not taxable under domestic tax laws, such income cannot be tax .....

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..... dit method, the entire credit is granted for the taxes paid in the Source State. Under the limited credit method, the credit granted in the Residence State is restricted to the lower of the tax paid in source state or the tax on that income in the residence state. In some cases, certain types of income are relieved from double taxation by using the credit method while some get relieved from do .....

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..... the treaty shopping arrangements. It limits the benefits of the tax treaty to be granted only in the genuine cases. Limitation on benefits clause provide for certain objective tests like expenditure tests, active business test for the resident of a particular country to qualify for the treaty benefits. It provides for not granting the treaty benefit to the sham entities. India has included Lim .....

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