Answer:

A DTAA is a tax treaty signed between two countries. It is intended to make a country an attractive investment destination by providing relief on dual taxation.

However, often investors use the provisions of DTAA to route the investments through low tax regimes to side step taxation. This leads to loss of tax revenue for the country.

Evan a bigger issue is that of issue of double non-taxation. National tax laws have not kept pace with the globalization of corporations and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their taxes.

With a mélange of some creative accounting techniques and existing loopholes in different fiscal jurisdictions across the world, tax evasion has emerged as a global woe in the last few decades.

Thus there is a conscious attempt by many countries to tackle the reckless acts of base erosion and profit shifting (BEPS). For example: Amendment to India – Mauritius DTAA.

Major amendments of India-Mauritius DTAA:

♤ It will give right to india to tax capital gains arising from sale or transfer of shares of an Indian company acquired by a Mauritian tax resident provision to exempt investments made until march 31st, 2017.

♤ The shares acquired between april 1st 2017 to march 31st 2019 will attract capital gains tax at 50% discount on domestic tax rate.

Thus under the amended treaty, the right to tax capital gains will be available to the country where the income arose.