The Union Cabinet has given its approval for revision existing Double Taxation Avoidance Agreement (DTAA) between India and Qatar. The purpose of revision is for avoidance of double taxation and for prevention of fiscal evasion with respect to taxes on income. The existing DTAA between India and Qatar was signed in April 1999 and came into force in January, 2000. The
Features of Revised DTAA
- It updates provisions for exchange of information to latest standard. It includes Limitation of Benefits (LOB) provision to prevent treaty shopping and aligns other provisions with India’s recent treaties.
- It meets minimum standards on treaty abuse under Action 6 and Mutual Agreement Procedure under Action 14 of G-20 OECD Base Erosion & Profit Shifting (BEPS) Project to which India is participating.
Under it, a resident of third country invests by taking advantage of fiscal treaty between India and another contracting state. This has greatly contributed in encouraging FDI in country but has been medium of tax evasion. The roots of Treaty shopping are in inconsistencies among international tax regimes. If there is dissimilarity of tax systems, it can lead to distortion of investment flows. It can be controlled by introduction of limitation of benefit clause (LOB) and other clauses which limit benefits to residents of two countries only.