John Christensen – Swiss Double Taxation Conventions Penalize Poorer Countries A Double Taxation Convention (DTT) is essentially an agreement between two countries that determines which country has the right to tax you in certain situations. The aim is to avoid double taxation. The intention of an agreement on double tax evasion is to make a country an attractive investment objective by facilitating double taxation. This form of relief is granted by exempting income from income collected in a foreign country or by granting credits to the extent that taxes have been paid abroad. The growth of international trade and commerce is leading to flows of transnational capital, services and technologies, as well as the globalization of the economy. Residents of one country extend their business activities to other countries. The aim is to ensure that a high tax burden is not the result of double taxation or multiple taxation. The objective is for governments to enter into agreements with other countries in which the jurisdiction concerned is identified so that a given income is taxed in one country or, if taxed in both countries, reasonable facilities are granted in one country to alleviate the difficulties caused by taxation in another country. However, if there is a double taxation agreement between country X (country of residence) and country Y (country where business activities are carried out), corporate profits in country Y are not taxed if there is no stable establishment in country Y – profits are taxed only in country X where the entrepreneur is based. However, the potential benefits of double taxation agreements go far beyond this simple example. The need for a Double Tax Avoidance Agreement (DTAA) stems from an incorrect method of collecting taxes globally.
When a person intends to do a business abroad, he or she can pay taxes in both countries, i.e. in the country where the income is collected and in the country where the business is owned or, in this case, to avoid double taxation, that company may use tax evasion methods. „… For the purposes of this agreement, „resident“ is defined as “ resident“ subject to paragraph 2 of this section, any person who is taxable under the legislation of that jurisdiction because of his place of residence, place of residence, place of management or any other similar test. The terms „RESIDENTs of the United Kingdom“ and „people of The Gambia“ must be interpreted accordingly… The Double Tax Avoidance Agreement (DBAA) is a tax agreement signed between two or more countries to help taxpayers avoid double taxes on the same income. A DTAA is applicable in cases where a person is established in one nation but earns income in another nation. Therefore, when an investor from a third country passes on his investment from a country that has entered into the agreement with the country of origin, where the investor ends up paying very little or no tax, this concept is referred to as contract shopping. Such agreements are also referred to as „double avoidance tax agreements“ (DBAA) under the name of „tax treaties.“ The legal authority to enter into such agreements rests with the central government under the provisions of Section 90 of the Income Tax Act, in which, at the end of March 2002, India entered into 64 such agreements, insofar as they deal with different types of income that could be double-taxed.
In addition, there are 12 agreements that deal only with the profits of companies operated by aircraft and 5 with the profits of ships.