Cabinet approves Double Taxation Avoidance Agreement between India-Chile

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News:Union Cabinet has approved the signing of Double Taxation Avoidance Agreement (DTAA) and Protocol between India and the Republic of Chile.

Facts:

About Double Taxation Avoidance Agreement(DTAA):

  • Double Tax Avoidance Agreements(DTAAs) is a tax treaty signed between two or more countries. 
  • The objective of DTAA is that tax-payers in these countries can avoid being taxed twice for the same income.
  • A DTAA applies in cases where a taxpayer resides in one country and earns income in another.
  • DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance among others.

Significance of DTAA:

  • DTAAs are intended to make a country an attractive investment destination by providing relief on dual taxation.
  • DTAAs also provide for concessional rates of tax in some of the cases.
  • However,DTAAs can also become an incentive for even legitimate investors to route investments through low-tax regimes to sidestep taxation.This leads to loss of tax revenue for the country.

Additional information:

About Base erosion and profit shifting(BEPS):

  • Base erosion and profit shifting refers to the activities of multinational corporations to shift their profits from high tax jurisdictions to lower tax jurisdiction,thereby eroding the tax base of the high tax jurisdictions and depriving them of tax revenue.
  • In order to combat this,many countries entered into agreements to share tax information with each other to enhance transparency and make such profit shifting much harder.