Types Of Double Taxation And Double Taxation Relief - A Perspective

Double taxation in the context of international tax jurisprudence arises as most countries follow a mix of residence-based taxation and source-based taxation.

- Adv Sherry Samuel Oommen

1. What is Double Taxation?

Double taxation is essentially a scenario where the same income is taxed at different levels. It implies that individuals and entities would be constrained to pay taxes twice on the same income or profit earned. Such complex issues typically arise in cross-border investments and international business transactions.

World over double taxation has been considered as a menace. Pertinently, double taxation leads to an increased tax burden on individuals and businesses. In this process, there is a reduction in the disposable amount of income or wealth in the hands of the taxpayer leading to the discouragement of cross-border trade and investment, hindering of economic growth. It is not a secret that double taxation would also hinder economic development and limit the opportunities for growth and creation of jobs.

One must also bear in mind that double taxation comes with a load of administrative burdens. This burden adds cost and resources to tax compliance and could also result in diverting attention from core business activities.

From a global standpoint, double taxation could create tension and conflict between countries. Disputes could arise between nations as regards which nation has the right to tax a particular income or asset, which could lead to disagreements and strained diplomatic relations. Resolving such issues often requires international cooperation, negotiation and the establishment of tax treaties or agreements which could be a time-consuming and challenging process.

2. Types of Double Taxation 

Double taxation in the context of international tax jurisprudence arises as most countries follow a mix of residence-based taxation and source-based taxation. It is essentially of the following types: