| A tax is a governmental assessment or charge upon | | | | India-U.A.E Double Taxation Avoidance Agreement: |
| the property value, transactions such as transfers and | | | | 1. For the purposes of this Agreement, the term |
| sales, licenses granting a right and/or income of a | | | | "resident of a Contracting State" means any person |
| person or organization. | | | | who, under the laws of that State, is liable to tax |
| Due to phenomenal growth in international trade and | | | | therein by reason of his domicile, residence, place of |
| commerce and increasing interactivity among the | | | | management, place of incorporation or any other |
| nations, residents of one country extend their sphere | | | | criterion of a similar nature. |
| of business operations to other countries. | | | | 2. Under the Indo-UAE Double Tax Treaty, there shall |
| Cross-country flow of capital, services and technology | | | | be no tax imposed in India on capital gains income |
| is the order of the day particularly after our country | | | | earned by a UAE resident from disposal of shares of |
| embarked on the path of globalization of economy. | | | | Indian company. |
| This is generally defined as the imposition of | | | | 3. No corporate tax and capital gains tax present in |
| comparable taxes in two (or more) countries on the | | | | UAE. |
| same taxpayer in respect of the same subject matter | | | | 4. For the purposes of this Agreement, the term |
| and for identical periods. Presence of double or multiple | | | | "resident of a Contracting State" means any person |
| taxation acts as a major determining factor in | | | | who, under the laws of that State, is liable to tax |
| decisions relating to location of investment, technology | | | | therein by reason of his domicile, residence, place of |
| etc. as it affects the profits of a business enterprise. | | | | management, place of incorporation or any other |
| The effort is, therefore, to ensure that heavy tax | | | | criterion of a similar nature. |
| burden is not cast as a result of double or multiple | | | | Some of the landmark cases on India's Double Tax |
| taxation. The object is achieved by the Government | | | | Avoidance Treaties with the above countries: |
| entering into agreements with other countries whereby | | | | 1. The MA Rafique case (1995): In the first ever ruling |
| the respective jurisdiction is so identified that a | | | | on the subject, the AAR (Authority for Advance |
| particular income is taxed in one country only or, in | | | | Ruling) in the case of MA Rafique (213 ITR 317) held |
| case it is taxed in both the countries, suitable relief is | | | | that the applicant was eligible to the benefits of the |
| provided in one country to mitigate the hardship | | | | India-UAE tax treaty and that the capital gains, in |
| caused by taxation in another jurisdiction. | | | | question, would not be subject to tax in India. The AAR |
| Such agreements are known as "Double Tax | | | | inter alia observed as follows: "That though there was |
| Avoidance Agreements" (DTAA) also termed as | | | | no income-tax or wealth tax on individuals in any of |
| "Tax Treaties". The statutory authority to enter into | | | | the UAE nations, the fact that a comprehensive |
| such agreements is vested in the Central Government | | | | agreement (tax treaty) was considered necessary in |
| by the provisions contained in Section 90 of the | | | | spite of a clear knowledge that there was no such tax |
| Income Tax Act in terms of which India has, by the | | | | on individuals in UAE could only mean that the |
| end of March 2002, entered into 64 agreements of | | | | agreement was intended to encourage the inflow of |
| this nature which are comprehensive in the sense that | | | | funds from Dubai and other Emirates to India for |
| they deal with different types of income which may | | | | investment." Read in this background, Article 13 clearly |
| be subjected to double taxation. | | | | left it to the UAE to deal with the capital gains on |
| It is not unusual for a business or individual who is | | | | movable property realized by all UAE investors. In |
| resident in one country to make a taxable gain | | | | other words, the AAR held that definition of the term |
| (earnings, profits) in another. This person may find that | | | | 'resident' should be construed broadly and that the |
| he is obliged by domestic laws to pay tax on that gain | | | | term 'liable to tax' does not connote an 'actual taxation |
| locally and pay again in the country in which the gain | | | | measure'. |
| was made. Since this is inequitable, many nations make | | | | 2. Pereira Case (1999): Subsequently, a contrary ruling |
| bilateral Double Taxation Agreements with each other. | | | | in the case of Cyril Pereira (239 ITR 650) was issued |
| In some cases, this requires that tax be paid in the | | | | by the AAR. In this ruling, the term 'liable to tax' as laid |
| country of residence and be exempt in the country in | | | | down in the definition of a resident was construed |
| which it arises. India has such agreements with over | | | | narrowly and was equated with the term 'subject to |
| 60 countries. Here, we shall deal with its agreements | | | | tax' or actual payment of tax. As individuals do not |
| with Mauritius and U.A.E. | | | | pay tax in the UAE, it was held that the applicant Cyril |
| Some of the important tenets of the India-Mauritius | | | | Pereira was not a tax resident of the UAE and was |
| Double Taxation Avoidance Agreement: | | | | not entitled to the beneficial provisions of the India-UAE |
| 1. GBL1 companies can claim benefits of India-Mauritius | | | | tax treaty. |
| Double Tax Treaty which provides complete tax | | | | 3. Andolan's Case (2003): Further, the Supreme Court |
| exemption to Mauritian tax residents in respect of | | | | in the case of Azadi Bachao Andolan's case (263 ITR |
| capital gains income arising on sale of shares of an | | | | 706) did not accept the contention that the avoidance |
| Indian company. | | | | of double taxation can arise only when tax is actually |
| 2. No capital gains tax to be imposed in Mauritius | | | | paid in one of the countries to the tax treaty. Unlike the |
| enabling Mauritian tax residents to earn completely tax | | | | rulings given by the AAR, the Supreme Court orders |
| free capital gains income from sale of shares of Indian | | | | set a precedent. The Supreme Court ruled saying it |
| company. | | | | was not persuaded to accept the argument that |
| 3. Indian Supreme Court's ruling in Azadi Bachao | | | | avoidance can arise only when the tax is paid in one |
| Andolan's case has laid down the clear law that | | | | of the contracting states. |
| where a Mauritian entity has been issued "tax | | | | 4. Abdul Razack A. Meman (2005): Everything was |
| residency certificate" by Mauritian tax authorities, | | | | back to square one, as in the case of Abdul Razaq |
| benefits of Indo-Mauritian tax treaty would be available. | | | | Memon, a UAE national, the AAR ruled that investors |
| This Agreement between India and the United Arab | | | | of the United Arab Emirates have to pay capital gains |
| Emirates (UAE) has been dogged by controversy as | | | | tax on their investments in India. The AAR was of the |
| to its applicability to individuals residing in UAE, ever | | | | view that Double Taxation Avoidance Agreements |
| since its inception. At the heart of the controversy is | | | | between India and the UAE were not useful for the |
| the issue of whether an individual can be said to be a | | | | purpose since UAE does not have a tax regime. |
| resident of the UAE and take advantage of the | | | | To conclude, as discussed, courts have kept on |
| provisions of the tax treaty, given the fact that | | | | indulging in a ping-pong of decisions, almost coming |
| individuals are not subject to tax in the UAE at all, and | | | | across as not being able to make up their minds on |
| given the fact that a person has to be resident in the | | | | the subject. The importance of foreign investments for |
| UAE under the tax laws of that state in order to | | | | the economy does not have to be emphasized. Once |
| qualify as a resident of the UAE for the purposes of | | | | and for all, the authorities have to arrive at a firm |
| the tax treaty. Some of the important tenets of the | | | | decision and stop acting capricious. |