Double Taxation Avoidance Agreement: A Critical Analysis of Its Effectiveness in Preventing Tax Evasion

Abstract

“What to do with my left income, if I pay Two taxes” with reference to the said quote, the citizen of one country who resides in another country for profession or for a work has to pay taxes for both countries called as Double Taxation. Double Taxation refers to the tax which are levied twice on same income and same subject matter.1 To avoid the multiple taxes on same income, the concept of Double Taxation Avoidance has emerged in 1920. In 1920, the league of nation constituted four Economist to recommend some international tax rules to avoid multiple taxes on same income.2 To avoid this kind of taxes, Double Taxation Avoidance Agreements (herein after DTAA) was created between the nations. There are three kinds of treaty in DTAA. They are unilateral, bilateral and multilateral treaties. Double Taxation Avoidance agreement means an agreement between two or more countries to avoid the Double taxation and it gives relief to those who pays multiple tax on same income.3 DTAA’s plays vital role in preventing the same income is taxed twice.4 This DTAA is a bilateral treaty between two sovereign state5 which defines the taxable income of a person.