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C h a l l e n g e U s Baroda branch, WIRC. November 2013 Foreign tax credit Kalpesh Desai Partner, BMR Advisors.

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Presentation on theme: "C h a l l e n g e U s Baroda branch, WIRC. November 2013 Foreign tax credit Kalpesh Desai Partner, BMR Advisors."— Presentation transcript:

1 C h a l l e n g e U s Baroda branch, WIRC

2 November 2013 Foreign tax credit Kalpesh Desai Partner, BMR Advisors

3 All rights reserved | Preliminary & Tentative Introduction Types of Relief  Unilateral relief  Bilateral relief Double non-taxation Excess foreign tax credit Documentation Cases where foreign tax credit not available Direct Tax Code Practical issues in foreign tax credit Case studies Contents Foreign tax credit| 3

4 Introduction

5 All rights reserved | Preliminary & Tentative What is Foreign Tax Credit? Foreign tax credit (‘FTC’) – Method for elimination of double taxation Credit for the taxes paid in the source country against the taxes to be discharged in the residence country Income tax systems that tax residents on worldwide income generally offer FTC to mitigate the potential for double taxation of income For a tax payer to be eligible for FTC, the tax payer must have  made a payment to a foreign government, and  the payment must be towards an income tax, or a tax in lieu of an income tax | 5Foreign tax credit

6 All rights reserved | Preliminary & Tentative Concept of double taxation Jurisdictional double taxation - One and the same person is taxed on the same income in more than one state. This may happen for one of the following reasons:  Residence in one state and source in another state  Triangular taxation Economic Double taxation - Two separate persons are taxed on the same income in more than one state  Foreign income taxed in the hand of overseas company distributing dividend and dividend taxed in the hands of shareholder  Taxation in source country in the hands of a partnership entity whereas in the residence county, partners of such partnership are taxable Foreign tax credit| 6

7 All rights reserved | Preliminary & Tentative Elimination of double taxation Countries often provide their residents with relief from double taxation through their domestic tax laws – Chapter IX of the Income-tax Act, 1961 (‘the Act’) Double Taxation Avoidance Agreements (‘DTAAs’) also contain articles for the elimination of double taxation Relief via DTAAs may be more generous than the domestic tax laws Relief entrenched in the DTAA also restricts a country’s ability to amend unilaterally the double tax relief provisions in its domestic law to the detriment of tax payers Residence State to provide the relief – Residence as per Article 4 Allocation of Right to Tax  Renunciation of right to tax by either state (Dependant services)  Sharing of rights (Resident state will provide Relief) | 7Foreign tax credit

8 Types of Relief

9 All rights reserved | Preliminary & Tentative Types of Relief Under Section 91 of the Act Under Section 91 of the Act Under Section 90 of the Act Applicable where DTAA does not exists Applicable where DTAA does not exists Applicable where DTAA exists Applicable where DTAA exists Unilateral relief Bilateral relief | 9 When the domestic tax system of a state provides relief for double taxation irrespective of whether the other state’s tax system provides corresponding relief or not Two states negotiate an agreement for providing double taxation relief, such relief is provided through a DTAA Foreign tax credit

10 All rights reserved | Preliminary & Tentative Unilateral relief – Illustration ParticularsCase ICase II Assumptions(INR) Income in India150,000 Income in foreign country100,000 Global income250,000 Tax rate in India30% Tax rate in foreign state25%35% Workings Income tax on global income(A)75,000 Indian tax on foreign income(B)30,000 Foreign tax on foreign income(C)25,00035,000 Unilateral tax relief as per the Act – Lower of (B) or (C)(D)25,00030,000 Tax payable in India (A) – (D)(E)50,00045,000 Total tax outflow (B) + (E)75,00080,000 Effective global tax rate30%32% | 10Foreign tax credit

11 All rights reserved | Preliminary & Tentative Bilateral Relief – Methods Methods Exemption Exemption with progression Credit Full credit Tax sparing Tax sparing Ordinary Credit Ordinary Credit Underlying tax credit Underlying tax credit Full exemption Foreign tax credit | 11

12 Exemption Method

13 All rights reserved | Preliminary & Tentative Exemption method(1/3) Under this method, the residence country exempts the income arising in the source country Income would be chargeable to tax only in the source country Generally preferred in DTAAs between a developed country and developing country, as the developed country would generally be exporting capital and technology to developing country Two variants –  Full exemption – The residence country fully exempts the income earned by its resident in the source country. Accordingly the capital / technology exporter would not be required to pay tax on such income which would make it attractive for the exporter to export capital/ technology to the source country (eg Article XVII of India – Greece DTAA)  Exemption with progression – The residence country exempts the source country income but the exempt income is considered for determining the tax on the non-exempt income (eg Article 23 of India – Austria DTAA) | 13Foreign tax credit

14 All rights reserved | Preliminary & Tentative Exemption method(2/3) Exemption method - concerns  Reduces the tax share of resident state  Encourages use of low-tax countries as source state  May result in Double non-taxation (explained later) where source country exempts such income | 14Foreign tax credit

15 All rights reserved | Preliminary & Tentative Exemption method(3/3) ParticularsFull exemption Exemption with progression Assumptions(INR) Income in State R (Residence country)60,000 Income in State S (Source country)40,000 Aggregate taxable income in State R100,000 Rate of tax in State R - for income up to Rs 80,000 - for income exceeding Rs 80,000 (on entire income) 25% 35% 25% 35% Tax rate in State S20% Workings Tax payable in State R60,000*25% = 15,00060,000*35% = 21,000^ Tax payable in State S40,000*20% = 8,000 Aggregate tax23,00029,000 Tax on aggregate income23%29% ^The exempt income has been included for the purpose of ascertaining the applicable rate of tax (ie 60, ,000 = 100,000). Hence, the applicable tax rate will be 35% Exemption with progression - Level of foreign source income is relevant | 15Foreign tax credit

16 Credit Method

17 All rights reserved | Preliminary & Tentative Under this method, the residence country exempts the taxes paid in the source country For the residence country, the loss of revenue is generally lower in credit method, therefore generally most DTAAs relieve double taxation only through credit method Non-refundable tax credit – In case the tax payable in Resident state is less than the credit available or the relevant income is exempt in Resident state, the resident would never get refund of the excess credit for the taxes paid in Source state Four variants  Full credit – Resident state grants credit for the taxes paid in the Source State without any restriction  Ordinary credit – Tax credit is restricted to lower of the taxes to be paid in the Resident state or the actual taxes discharged in the Source state  Tax sparing – Income exempt in the Source state. However such income is taxable in the Resident state for which the resident state provides for deemed tax exemption or deemed tax credit  Underlying tax credit – Mechanism to eliminate a form of ‘economic double taxation’ | 17 Credit method (1/7) Foreign tax credit

18 All rights reserved | Preliminary & Tentative Full credit(2/7) Under this method, the residence country exempts the taxes paid in the source country OECD Model Convention Article 23 of India – Namibia DTAA ParticularsCase ICase II AssumptionsAmount in INR Income in State R80,000 Income in State S20,000 Aggregate taxable income in State R100,000 Tax rate in State R35% Tax rate in State S20%40% Workings Tax payable in State R (A) 35,000 Tax payable in State S (B) 4,0008,000 Total tax credit (credit for full taxes paid) (C) = (B) (C) 4,0008,000 Total tax after relief – (A) – (C) (D) 31,00027,000 | 18Foreign tax credit

19 All rights reserved | Preliminary & Tentative Ordinary credit(3/7) Under this method, tax credit is restricted to lower of  The taxes to be paid in the Resident state; or  The actual taxes discharged in the Source state Article 25 of India – USA DTAA ParticularsCase ICase II AssumptionsAmount in INR Income in State R80,000 Income in State S20,000 Aggregate taxable income in State R100,000 Tax rate in State R35% Tax rate in State S20%40% Workings Tax payable in State R(A)35,000 Tax payable in State S(B)4,0008,000 Taxes in Resident state on income from Source state^(C)7,000 Total tax credit - Lower of (B) & (C)(D)4,0007,000 Total tax after relief – (A) – (D)(E)31,00028,000 ^ 20,000 * 35 % = 7,000 | 19Foreign tax credit

20 All rights reserved | Preliminary & Tentative Tax sparing credit(4/7) Income is taxable in the Resident state but it provides for deemed tax exemption or deemed tax credit of taxes so exempted by the Source state Domestic tax laws of countries generally do not provide for tax sparing credit Article 25 of India – Singapore DTAA Generally attached to income like dividend, interest, royalties, foreign branch / permanent establishment income However, concept of tax sparing credit leads to double non-taxation (explained later) | 20Foreign tax credit

21 All rights reserved | Preliminary & Tentative Tax sparing credit(5/7) Tax sparing credit - Illustration Particulars Tax sparing – Absent Tax sparing – Present Assumptions Amount in INR Income in State R80,000 Income in State S20,000 Aggregate taxable income in State R100,000 Tax rate in State R35% Tax rate in State S (exempted 30%) - normal rate - special rate 30% 0% 30% 0% Workings Tax payable in State R(A)35,000 Tax payable in State S(B)-- Tax credit (tax charged in State S)(C)-- Tax credit (tax exempted in State S) ^(D)-6,000 Total tax credit (C) + (D)(E)-6,000 Total tax after relief – (A) – (E)(F)35,00029,000 ^ 20,000* 30 % = 6,000 | 21Foreign tax credit

22 All rights reserved | Preliminary & Tentative Underlying tax credit(6/7) A mechanism to eliminate a form of ‘economic double taxation’ Attached to dividend income; available only to a company Credit is granted by Resident state not only for the taxes withheld on dividends but also for the corporate taxes paid on the underlying profits out of which dividends has been paid Intended to mitigate the double taxation of corporate profits, which are taxed firstly in the hands of the company and secondly in the hands of the shareholders (on the dividends paid by the company) Requirement of substantial shareholding Illustratively the following Tax treaties provide for tax credit –  Article 24 of India – UK DTAA  Comparison between Article 23 of India – Mauritius DTAA and Article 25 of India – Singapore DTAA | 22Foreign tax credit

23 All rights reserved | Preliminary & Tentative Underlying tax credit(7/7) Underlying tax credit - Illustration ParticularsAmount in INR Taxation of Indian Subsidiary Co of UK Holding Co In India Profit of Subsidiary Co in source state (India)100,000 Taxes (30%)(30,000) Profit after tax70,000 Dividend distributed50,000 Dividend paid to UK Holding Co (70% holding)35,000 Dividend Distribution Tax on above (15%)(A)(5,250) Taxation of UK Holding Co in UK Profit of UK Holding Co in UK200,000 Dividend income35,000 Taxable income235,000 Tax Rate (40%)(B)94,000 Underlying Tax Credit [35,000 * 30,000 / 70,000](C)(15,000) Total Tax Credit (A) + (C)(D)20,250 Total Tax after Relief73,750 | 23Foreign tax credit

24 Double non-taxation

25 All rights reserved | Preliminary & Tentative Double non-taxation (1/2) Double non-taxation is a situation where on account of benefits available under DTAA, a tax payer is not liable to tax in both the Resident state as well as Source state Capital Gains taxability under the India – Mauritius tax treaty is a classic example of the same Company X (Mauritius resident) Mauritius Capital Gains exempt in India for a Mauritius resident as per DTAA between India and Mauritius Capital Gains exempt in Mauritius as per Mauritius tax laws | 25Foreign tax credit India Indian Co Shares held Mr X Sale of shares of Indian Co

26 All rights reserved | Preliminary & Tentative As visible from the diagram, the above arrangement discharges Company X from tax liability from both the Resident state (Mauritius) as well as Source state (India) Some companies take undue advantage of the above arrangement by merely incorporating subsidiaries in low-tax jurisdictions and by shifting the profits through legal planning into these subsidiaries | 26Foreign tax credit Double non-taxation (2/2)

27 Excess FTC

28 All rights reserved | Preliminary & Tentative Excess FTC (1/2) The amount of FTC that can be claimed in India is the lower of:  The amount of foreign income tax paid; or  The amount of income tax chargeable on that foreign source income in India A taxpayer will not be able to claim full FTC in India if the amount of income tax paid in the foreign country is higher than the amount of income tax payable in India on that foreign source income The DTAA’s entered by Government of India do not permit carry forward of excess FTC. | 28Foreign tax credit

29 All rights reserved | Preliminary & Tentative Excess FTC (2/2) Following countries allow carry forward of excess foreign tax paid: | 29 FTC carry forward (No of years) Carry-back (No of years) Reference Canada103Section 126(2)(a) of the Canada Income Tax Act Japan33Code No of National Tax Agency SingaporeNo limit-Section 50 of the Singapore Income Tax Act UKNo limit3Sections 72 to 74 of the Taxation (International and Other Provisions) Act 2010 USA101IRC Section 904 (c) Foreign tax credit Source:

30 Documentation

31 All rights reserved | Preliminary & Tentative Documentation required for FTC Overseas Tax withholding certificates evidencing payment of taxes in foreign jurisdiction External third party confirmation Overseas Tax Returns, if any Certificate from Foreign Tax authorities, where possible | 31Foreign tax credit

32 Cases where FTC is not available

33 All rights reserved | Preliminary & Tentative Cases where FTC not available (1/2) Not furnishing of Permanent Account Number (‘PAN’) In case a foreign resident does not furnish a PAN; any payment made to him shall be subject to withholding tax at the higher of the following rates: at the rate specified in the relevant provision of the Act; or at the rate or rates in force; or at the rate of twenty percent If a foreign resident for the reasons mentioned above is subject to withholding tax at a higher rate than tax rate provided under the DTAA, availing FTC will be difficult on the additional amount withheld on account of non furnishing of PAN; which is penal in nature | 33Foreign tax credit

34 All rights reserved | Preliminary & Tentative Cases where FTC not available (2/2) Foreign Account Tax Compliance Act (‘FATCA’) - US If an Indian resident earning interest income from USA (source country) does not comply with FATCA reporting requirements, than he may be liable to an additional withholding tax of 30% on the interest income so earned However, availing FTC will be difficult on the taxes withheld on this account as it is not covered under the definition of ‘Taxes covered’ under the DTAA and are merely penal in nature | 34Foreign tax credit

35 Direct Tax Code

36 All rights reserved | Preliminary & Tentative FTC under the Direct Taxes Code, 2010 Provisions similar to existing Section 90(2) and Section 91 of the Act Available only to a ‘Resident in India’ Amount of credit restricted to:  the Indian income-tax payable in respect of income which is taxed outside India; and  the Indian income-tax payable in respect of total income of the assessee Requirement of TRC to claim treaty benefits  Government to prescribe the methods, manner and other particulars  Limited Treaty Override – Treaty benefits not available if General Anti Avoidance Rules or Controlled Foreign Corporation (‘CFC’) provisions are invoked or if Branch Profit Tax is levied Need to address issues of grant of FTC in cases where CFC provisions are invoked | 36Foreign tax credit

37 Practical issues

38 All rights reserved | Preliminary & Tentative US Fiscal Year 2012 US Fiscal Year 2013 Indian Fiscal April, 2012 December, 2012 March, 2013 USA return to be filed by April 15, 2013 USA return to be filed by April 15, 2014 How to claim credit for the final tax liability for the period Jan-Mar 2013 in Indian tax filings for ? Indian Return for the fiscal year to be filed by July 31, 2013 / September 30, 2013 | 38 Practical issues in FTC – Timing (1/6) Foreign tax credit

39 All rights reserved | Preliminary & Tentative | 39 Practical issues in FTC – DDT (2/6) Any amount declared, distributed or paid by way of dividend is subject to DDT DDT is neither a withholding tax on dividend income nor a tax on the profits of the company from which dividend is declared Under the DTAAs, tax credit is typically available for tax on income (ie income-tax) and for tax on the profits of the company from which dividend is declared (ie UTC). Therefore, tax credit on DDT is per se not available under the DTAAs However, credit for DDT can be availed if Resident state considers DDT as income- tax or underlying tax as per its domestic law Similar issue could arise in respect of Buy-back Distribution Tax Foreign tax credit

40 All rights reserved | Preliminary & Tentative Practical issues in FTC – inter-country adjustment (3/6) | 40 Indian Company X India Country A Country B Loss of INR 50 million (‘mn’) Profit of INR 100 mn Tax paid INR 20 Tax paid INR 10 Alternative Options: 1.Whether loss in India to be adjusted against profit from Country A? 2.Whether loss in India to be adjusted against profit from Country B? 3.Whether loss in India to be adjusted proportionately against profit from Country A and B? Foreign tax credit

41 All rights reserved | Preliminary & Tentative Practical issues in FTC – Migration of residence (4/6) BelgiumIndia Mr X pays tax at the time of grant of ESOP Year 1Year 2 Foreign expatriate Mr X pays tax at the time of exercise of ESOP Double taxation as he may not be able to get FTC for taxes paid in year of grant | 41Foreign tax credit

42 All rights reserved | Preliminary & Tentative Practical issues in FTC – FOREX (5/6) ParticularsExchange Rate Prevailing Indian resident derives business income of USD 100 in source state 1$ = INR 45 Tax paid in source state of USD 151$ = INR 46 Realization of income1$ = INR 44 Which of the above exchange rate should be considered for the purpose of calculation of the quantum of foreign taxes that are available for FTC? | 42Foreign tax credit

43 All rights reserved | Preliminary & Tentative Practical issues in FTC – indirect transfers (6/6) Mauritius Co US Co 100% India Co 100% Sale of shares held in Mauritius entity to third party Mauritius Indirect transfer India USA Both the countries have right to tax capital gains in accordance with the provisions of its domestic law Credit for taxes paid in India available in the US? Credit for taxes paid in India pursuant to recently introduced provisions pertaining to indirect transfers?

44 Case Studies

45 All rights reserved | Preliminary & Tentative Case study 1 Facts Company A pays Federal and State taxes in the USA  Taxes covered as per Article 2 of India – USA DTAA in the USA include ‘federal income taxes’ imposed by the Internal Revenue Code Deduction of foreign taxes disallowed under Section 40(a)(ii) of the Act as any ‘any taxes’ paid covered  any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be deducted from Business income Credit for only Federal income taxes paid is allowed as per India – USA DTAA Question Would Company A be eligible to claim credit of the State taxes under Section 91 in light of Section 90(2) of the Act? | 45Foreign tax credit

46 All rights reserved | Preliminary & Tentative Case study 1 Held In the case of Tata Sons Limited v DCIT (43 SOT 27), it has been held that the view that State taxes cannot be allowed as a deduction and also cannot be taken into account for giving credit is incongruous and results in a contradiction. A tax payment which is not treated as admissible expenditure on the ground that it is payment of income tax has to be treated as eligible for tax credit While Section 91 of the Act allows credit for Federal and State taxes, the DTAA allows credit only for Federal taxes. The result is that the Section 91 is more beneficial to the assessee and by virtue of Section 90(2) of the Act, provisions of Section 91 must prevail over the DTAA even though this is a case where India has entered into a DTAA Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes under Section 91 of the Act despite the DTAA not providing for the same | 46Foreign tax credit

47 All rights reserved | Preliminary & Tentative Case study 2 Facts Company A has operations in India, Country A and Country B Income details of the branches in Country A and Country B are as follows Question For the purposes of relief under Section 91(1), whether income of Rs 1,000 or Rs 700 to be considered? BranchIncome/(Loss) Country ARs 1,000 Country B(Rs 300) Total (post set-off)Rs 700 | 47Foreign tax credit

48 All rights reserved | Preliminary & Tentative Case study 2 Held In the case of CIT v Bombay Burmah Trading Corporation (259 ITR 423), Bombay High Court held that Section 91 read with explanation of ‘rate of tax of the said country’, it is evident that the section deals with granting relief calculated on income country-wise and not on the basis of amalgamation or aggregation of income of all foreign countries Expression ‘doubly taxed income’ indicates that the phrase has reference to the tax which the foreign income bears when it is again subjected to tax by its inclusion under the Act Thus, relief has to be considered country-wise | 48Foreign tax credit

49 All rights reserved | Preliminary & Tentative Case study 3 Facts Assessee (Resident of India) earns income from provision of export services outside India Tax deducted at source on the above income Deduction of 50% was claimed by assessee under section 10A [Entities established in Special economic zone (’SEZ’)] of the Act while offering the above income to tax in India Question For the purposes of relief under Section 91(1) of the Act, whether FTC can be claimed on entire taxes deducted in foreign country? | 49Foreign tax credit

50 All rights reserved | Preliminary & Tentative Case study 3 Held In the case of Dr K.L.Parikh v ITO, 1982 (14 TTJ 117), the assessee claimed that relief from Double taxation must be allowed in respect of entire amount of taxes deducted at source. The assesse has earned income from Iran on which taxes were deducted. While offering the foreign sourced income to tax in India, Assessee had claimed deduction (upto 50 percent) under section 80RRA of the Act. The Commissioner of Income-tax (Appeals) [‘CIT(A)’] rejected the assessee’s claim and allowed relief upto 50 percent of taxes deducted The Tribunal rejected CIT(A) claim and declared the decision in favour of the assessee | 50Foreign tax credit

51 All rights reserved | Preliminary & Tentative Case study 3 However, Rajasthan High Court held that the Tribunal was not justified in holding that the assessee was entitled to credit for the entire amount of tax deducted at source in Iran under section 91(1) of the Act, and not in proportion to the income included in the total income of the assessee after considering the provisions of section 80RRA of the Act and relief was granted proportionately upto 50 percent of FTC Based on above, same principle will apply to entities established in SEZ and hence they cannot claim tax credit on foreign taxes paid abroad in respect of incomes which are exempt from tax in India | 51Foreign tax credit

52 THANK YOU For any queries please contact: Kalpesh Desai Partner BMR Advisors BMR House, 36, Dr RK Shirodkar Marg, Parel, Mumbai

53 All rights reserved | Preliminary & Tentative Article 4 - Resident 1.For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein. | 53Foreign tax credit

54 All rights reserved | Preliminary & Tentative Article 23 - Methods for elimination of double taxation Article 23A - Exemption Method 1.Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall, subject to the provisions of paragraphs 2 and 3, exempt such income or capital from tax 2.Where a resident of a Contracting State derives items of income which, in accordance with the provisions of Articles 10 and 11, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State | 54Foreign tax credit

55 All rights reserved | Preliminary & Tentative Article 23 - Methods for elimination of double taxation Article 23A - Exemption Method 3.Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital. 4.The provisions of paragraph 1 shall not apply to income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of the Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10 or 11 to such income | 55Foreign tax credit

56 All rights reserved | Preliminary & Tentative Article 23 - Methods for elimination of double taxation Article 23B – Credit Method 1.Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow: a) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other State; b) as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State. 2.Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital | 56Foreign tax credit

57 All rights reserved | Preliminary & Tentative Full exemption - Article XVII of India – Greece DTAA | 57Foreign tax credit 1.The laws in force in either of the territories will continue to govern the assessment and taxation of income in the respective territories except where express provision to the contrary is made in this Agreement 2.Subject to the provisions of Article VI* income from sources within Greece which under the laws of Greece and in accordance with this Agreement is subject to tax in Greece either directly or by deduction shall not be subject to Indian tax 3.Subject to the provisions of Article VI income from sources within India which under the laws of India and in accordance with this Agreement is subject to tax in India either directly or by deduction shall not be subject to Greek tax *Article VI – Deals with income from Shipping

58 All rights reserved | Preliminary & Tentative Partial exemption - Article 23 of India – Austria DTAA | 58Foreign tax credit  Where a resident of Austria derives income which, in accordance with the provisions of this Convention, may be taxed in India, Austria shall, subject to the provisions of sub-paragraphs (b) and (c) exempt such income from tax (b)Where a resident of Austria derives items of income which, in accordance with the provisions of paragraph 2 of Articles 10 (dividend), 11 (interest), 12 (royalties), paragraphs 4 and 5 of Article 13 (capital gains) and paragraph 3 of Article 22 may be taxed in India, Austria shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in India. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from India (c)Where in accordance with any provision of the Convention income derived by a resident of Austria is exempt from tax in Austria, Austria may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income 2

59 All rights reserved | Preliminary & Tentative Full credit - Article 23 of India – Namibia DTAA | 59Foreign tax credit 1.…………….. 2.In India, double taxation shall be eliminated as follows : Where a resident of India derives income or capital gains from Namibia, which, in accordance with the provisions of this Convention may be taxed in Namibia, then India shall allow as a deduction from the tax on the income of that resident an amount equal to the tax on income or capital gains paid in Namibia, whether directly or by deduction

60 All rights reserved | Preliminary & Tentative Ordinary credit - Article 25 of India – USA DTAA | 60Foreign tax credit 1.…………….. 2.(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income- tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States (b) ……………

61 All rights reserved | Preliminary & Tentative Tax sparing - Article 25 of India – Singapore DTAA | 61Foreign tax credit 4.Subject to the provisions of the laws of Singapore regarding the allowance as a credit against Singapore tax of tax paid in any country other than Singapore, Indian tax paid, whether directly or by deduction, in respect of income from sources within India shall be allowed as a credit against Singapore tax payable in respect of that income. Where such income is a dividend paid by a company which is a resident of India to a resident of Singapore which owns not less than 25 per cent of the share capital of the company paying the dividends, the credit shall take into account Indian tax paid in respect of its profits by the company paying the dividends. 5.For the purposes of paragraph 4 of this Article the term "Indian tax paid" shall be deemed to include any amount of tax which would have been payable in India but for a deduction allowed in computing the taxable income or an exemption or reduction of tax granted for that year in question

62 All rights reserved | Preliminary & Tentative Tax sparing - Article 25 of India – Singapore DTAA | 62Foreign tax credit a.Section 10(4), 10(4B), 10(5B), 10(15)(iv), 10A, 10B, 33AB, 80-I and 80-IA, insofar as these provisions were in force and have not been modified since the date of signature of this Agreement, or have been modified only in minor respects so as not to affect their general character b.Any other provision which may subsequently be enacted granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character to a provision referred to in sub- paragraph (a) of this paragraph, if such provision has not been modified thereafter or has been modified only in minor respects so as not to affect its general character

63 All rights reserved | Preliminary & Tentative Underlying tax credit - Article 24 of India – UK DTAA | 63Foreign tax credit 1.Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof): (a) …………….. (b) In the case of a dividend paid by a company which is a resident of India to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account in [addition to any Indian tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph] the Indian tax payable by the company in respect of the profits out of which such dividend is paid

64 All rights reserved | Preliminary & Tentative Comparison | 64Foreign tax credit Article 23 of India – Mauritius DTAAArticle 25 of India – Singapore DTAA (a) ………… (b)In the case of a dividend paid by a company which is a resident of Mauritius to a company which is a resident of India and which owns at least 10 per cent of the shares of the company paying the dividend, the credit shall take into account [in addition to any Mauritius tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph] the Mauritius tax payable by the company in respect of the profits out of which such dividend is paid 1.………. 2.Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Singapore, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Singapore tax paid, whether directly or by deduction. Where the income is a dividend paid by a company which is a resident of Singapore to a company which is a resident of India and which owns directly or indirectly not less than 25 per cent of the share capital of the company paying the dividend, the deduction shall take into account the Singapore tax paid in respect of the profits out of which the dividend is paid. Such deduction in either case shall not, however, exceed that part of the tax (as computed before the deduction is given) which is attributable to the income which may be taxed in Singapore


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