flowchart TB
IT[International Taxation] --> D[DTAA<br/>OECD · UN Models · §90/90A/91]
IT --> PE[Permanent Establishment<br/>Fixed · Agency · SEP §9]
IT --> TP[Transfer Pricing<br/>§§92-92F · ALP · APA · CbCR]
IT --> AA[Anti-Avoidance<br/>GAAR · POEM · MLI · BEPS Pillar 2]
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91 International Taxation: Double taxation and its avoidance mechanism; Transfer pricing
91.1 Concept of International Taxation
International taxation deals with cross-border transactions and the rules that determine which country may tax what income and by how much. The core problem is double taxation — the same income getting taxed in both the source country and the residence country. To address it, countries enter into Double Taxation Avoidance Agreements (DTAAs) modelled on the OECD Model, UN Model, or US Model. The companion problem is base erosion and profit shifting (BEPS) by multinational enterprises (MNEs), which is tackled through transfer-pricing rules and the OECD/G20 BEPS Project (2013-15; 2.0 — 2021).
91.2 Sources of Indian International-Tax Law
TipSources of International Tax Law
- Income-tax Act 1961 — §§ 5, 6, 9 (deemed income), 90, 90A, 91, 92-92F (TP), 115A-115BBA (NR taxation).
- DTAA / tax treaties — § 90; >90 comprehensive DTAAs (with USA, UK, Germany, Mauritius, Singapore, UAE, Netherlands, etc.).
- Multilateral Instrument (MLI) (OECD/G20) — India signed 2017; in force June 2019.
- FEMA 1999 and RBI regulations for currency cross-border movement.
- DTAA Notifications and CBDT Circulars.
- Vienna Convention on the Law of Treaties (1969) — interpretation.
91.3 Causes of Double Taxation
TipCauses
- Source-source conflict — two countries claim source.
- Residence-residence conflict — dual residence.
- Source-residence conflict — most common.
- Different definitions of income, residence, source.
91.4 DTAA Methods to Avoid Double Taxation
TipMethods
| Method | Mechanism |
|---|---|
| Exemption Method | Foreign income exempt in residence country (full/partial) |
| Credit Method | Tax paid abroad allowed as credit against domestic tax |
| Tax Sparing Credit | Hypothetical foreign tax credit even when foreign tax forgone |
| Underlying Tax Credit | Credit for tax paid by foreign subsidiary on profits before dividend |
| Deduction Method | Foreign tax allowed as a deduction (less generous) |
91.5 Bilateral vs Unilateral Relief
TipIndian Relief Provisions
- § 90 — Bilateral relief with DTAA country (assessee can choose the more beneficial of Act or DTAA, subject to GAAR).
- § 90A — Specific notified agreements with specified associations.
- § 91 — Unilateral relief where no DTAA (lower of foreign tax rate or Indian tax rate).
91.6 Permanent Establishment (PE)
A Permanent Establishment under OECD Article 5 is a “fixed place of business through which the business of an enterprise is wholly or partly carried on”. India also recognises:
TipTypes of PE
- Fixed-place PE — branch, office, factory, mine.
- Construction / Installation PE.
- Service PE — typical Indian treaty addition.
- Agency PE — dependent agent with authority to conclude contracts.
- Insurance PE.
- Significant Economic Presence (SEP) — § 9(1)(i) Explanation 2A — digital nexus rules (since 2021).
91.7 Indian Anti-Avoidance Toolkit
TipAnti-Avoidance Provisions
- GAAR (Chapter X-A, §§ 95-102) — effective 1 April 2017; ≥ ₹3 cr threshold; impermissible avoidance arrangement.
- Place of Effective Management (POEM) — § 6(3) — for foreign companies; effective AY 2017-18.
- Equalisation Levy 2016 — 6 % on online ad services; 2 % on e-commerce (sunset 1 Aug 2024).
- SEP rules — since FY 2021-22.
- Black Money Act 2015 — undisclosed foreign income.
- POEM, BEPS, MLI provisions — Limitation on Benefit (LOB), Principal Purpose Test (PPT).
91.8 Transfer Pricing (TP) — §§ 92-92F
Transfer pricing = pricing of cross-border transactions between associated enterprises (AEs). India aligned with OECD TP Guidelines since Finance Act 2001, applicable from AY 2002-03. Specified domestic transactions were brought in 2012 (now largely withdrawn 2017).
TipKey TP Provisions
- § 92 — Computation of income from international transactions at arm’s length price (ALP).
- § 92A — Associated enterprise.
- § 92B — International transaction.
- § 92C — Methods of computing ALP.
- § 92CA — Reference to Transfer Pricing Officer (TPO).
- § 92CB — Safe harbour rules.
- § 92CC — Advance Pricing Agreement (APA), since 2012.
- § 92CD — Effect of APA.
- § 92D — TP documentation (Master File, CbCR — § 286 — for groups > ₹6,400 cr).
- § 92E — TP audit by CA in Form 3CEB.
- § 92F — Definitions.
91.8.1 Methods of ALP (§ 92C)
TipALP Methods
- Comparable Uncontrolled Price (CUP).
- Resale Price Method (RPM).
- Cost Plus Method (CPM).
- Profit Split Method (PSM).
- Transactional Net Margin Method (TNMM) — most common.
- Any other method as prescribed by CBDT (Rule 10AB).
91.8.2 Associated Enterprise (§ 92A)
Two enterprises are AE if one participates directly or indirectly in management, control or capital of the other; or if both are controlled by the same person. Specific deeming clauses for shareholding (≥ 26 %), advances, loans, key personnel etc.
91.9 Advance Pricing Agreement (APA)
Since 2012; three flavours — Unilateral, Bilateral, Multilateral. Effective for 5 future years + optional 4 prior years (roll-back, since 2014). Reduces TP disputes.
91.10 CbCR & Master File
OECD BEPS Action 13 — Country-by-Country Reporting + Master File. India: § 286 + Rule 10DA/DB. CbCR by groups with consolidated turnover > ₹6,400 cr.
91.11 BEPS, MLI, and Pillar 1 & 2
TipBEPS 2.0 — Global Tax Reform
- Pillar 1: re-allocation of taxing rights — for large MNEs (revenue > €20 bn) on residual profits.
- Pillar 2: Global Minimum Tax of 15 % — Income Inclusion Rule (IIR) + Undertaxed Profits Rule (UTPR) — agreed by ~140 jurisdictions (Inclusive Framework).
- India — yet to enact Pillar 2 domestic legislation; signed MLI.
91.12 Key Indian DTAA Issues & Cases
TipNotable Cases
- Azadi Bachao Andolan 2003 — validity of treaty shopping.
- Vodafone International v UoI 2012 — indirect transfer of shares; led to retrospective amendment 2012 (now withdrawn 2021).
- Cairn Energy — retrospective tax repealed 2021.
- Engineering Analysis Centre 2021 — software payments to foreign cos not royalty.
- Nestlé / Concentrix / Steria — Most Favoured Nation (MFN) clauses; SC 2023 — MFN requires notification.
NoteDistractor warning
PYQ trap: §90 bilateral; §91 unilateral relief; TP §§92-92F since AY 2002-03; TNMM most common method; APA — 5 years + 4 yrs roll-back; GAAR ₹3 cr threshold; effective 1 April 2017; Pillar 2 — 15 % global minimum tax.
91.13 Practice Questions
Q 01DTAAEasy
Bilateral relief in India is under:
View solution
Correct Option: B
**§ 90 (and § 90A)** — bilateral.
Q 02UnilateralEasy
Unilateral relief without DTAA:
View solution
Correct Option: C
**§ 91**.
Q 03PEMedium
PE is defined in OECD Model under:
View solution
Correct Option: B
**Article 5** — OECD MC.
Q 04TPMedium
Transfer pricing provisions in India effective from:
View solution
Correct Option: B
**Finance Act 2001 — effective AY 2002-03**.
Q 05ALPMedium
Most commonly used TP method:
View solution
Correct Option: B
**TNMM** — Transactional Net Margin Method.
Q 06APAMedium
APA is valid for:
View solution
Correct Option: B
**5+4 yrs**.
Q 07GAARHard
GAAR threshold:
View solution
Correct Option: C
**₹3 crore tax benefit threshold**.
Q 08POEMMedium
POEM applies to:
View solution
Correct Option: A
**Foreign companies** — § 6(3) since AY 2017-18.
Q 09Pillar 2Hard
OECD Pillar 2 global minimum tax rate:
View solution
Correct Option: C
**15 % global minimum** — IIR + UTPR.
Q 10CbCRHard
CbCR threshold in India (consolidated turnover):
View solution
Correct Option: C
**₹6,400 crore** (≈ €750 million).
Q 11EQLMedium
2 % e-commerce Equalisation Levy was withdrawn from:
View solution
Correct Option: C
**Withdrawn 1 Aug 2024** (Finance Act 2024).
Q 12MLIHard
MLI in force for India from:
View solution
Correct Option: C
**Signed June 2017; in force June 2019**.
Q 13PPTHard
Principal Purpose Test (PPT) is part of:
View solution
Correct Option: B
**BEPS Action 6** — MLI Art 7.
Q 14AEHard
Associated Enterprise is defined in:
View solution
Correct Option: A
**§ 92A**.
Q 15VodafoneHard
Vodafone case (2012) related to:
View solution
Correct Option: A
Indirect transfer; retrospective amendment 2012, withdrawn 2021.
Q 16EqualisationMedium
6 % Equalisation Levy on online advertising was introduced in:
View solution
Correct Option: B
**Finance Act 2016**.
Q 17SEPHard
"Significant Economic Presence" (SEP) targets:
View solution
Correct Option: B
**Digital nexus** — Explanation 2A to § 9(1)(i).
Q 183CEBHard
TP audit report is filed in:
View solution
Correct Option: D
**§ 92E — Form 3CEB** by CA.
Q 19Safe harbourHard
TP Safe-harbour rules are under:
View solution
Correct Option: B
**§ 92CB** — safe harbour.
Q 20MatchMedium
Match section/provision:
| Provision | Section | ||
| (i) | Bilateral relief | (a) | § 91 |
| (ii) | Unilateral relief | (b) | § 92C |
| (iii) | ALP methods | (c) | § 90 |
| (iv) | APA | (d) | § 92CC |
View solution
Correct Option: A
90-bilateral, 91-unilateral, 92C-methods, 92CC-APA.
91.14 Quick Recall
ImportantQuick recall
- Double taxation — source-residence conflict.
- DTAA methods: Exemption, Credit, Underlying tax credit, Tax sparing, Deduction.
- Bilateral §90; Unilateral §91; treaty / Act, whichever more beneficial (subject to GAAR).
- PE (OECD Art 5) — fixed-place, construction, service, agency, insurance, SEP (digital, §9 since 2021).
- GAAR Ch X-A — ₹3 cr threshold; effective 1 April 2017.
- TP §§92-92F — ALP via CUP, RPM, CPM, PSM, TNMM, Other; §92E Form 3CEB; §92CC APA (5+4 yrs); §92CB safe harbour; § 286 CbCR > ₹6,400 cr.
- BEPS 2.0: Pillar 1 reallocation, Pillar 2 — 15 % global minimum; MLI in force June 2019.
- Equalisation Levy: 6 % ads since 2016; 2 % e-com 2020 (withdrawn 1 Aug 2024).
- Notable cases: Azadi Bachao 2003, Vodafone 2012, Engineering Analysis 2021, Nestlé MFN 2023.