Double Taxation Agreement Impact
4. In the event of a tax dispute, agreements can provide a two-way consultation mechanism and resolve the issues in dispute. The signing of the agreement on the prevention of double taxation has four main consequences. Baier, S. L., Bergstrand, J. H. (2007). Do free trade agreements really increase international trade among members? Journal of International Economics, 71 (1), 72-95. Anderson, J. E., Yotov, Yotov (2016). Terms of trade and overall efficiency effects of free trade agreements, 1990-2002.
Journal of International Economics, 99, 279-298. This paper examines the impact of double taxation (DTT) agreements on foreign direct investment (FDI) after controlling their relevance in the presence of contractual purchases. DTTs cannot be considered a bilateral issue, but should be considered a network. We define tax distance as the cost of channelling business revenues from one country to another, and by considering the contract, we calculate the shortest (i.e. cheapest) distance between two countries. We show that relevant tax treaties – which reduce direct tax distance from both national law and the existing contractual network as a whole – will increase foreign direct investment by about 18%. The third protocol also contains provisions to reduce economic double taxation in the event of transfer pricing. This is a fiscally favourable measure in line with India`s commitments under the BePS (Base Erosion and Profit Shifting) action plan to meet the minimum standard of access to the mutual agreement procedure (MAP) for transfer pricing. The third protocol also allows for the application of national legislation and measures to prevent tax evasion or evasion. Singapore`s investments of $5.98 billion pushed Mauritius as the largest individual investor for 2013/2014 with $4.85 billion.  The EM method requires the country of origin to collect tax on income from foreign sources and transfer it to the country in which it was created. [Citation required] Fiscal sovereignty extends only to the national border.
When countries rely on territorial principles as described above, [where?] they generally depend on the EM method to reduce double taxation. But the EM method is only common for certain income categories or sources, such as international maritime revenues.B. The well-intentioned motivation to eliminate double taxation has created a very complex network of TDRs that spread around the world, with often unintended consequences (Easson 2000). While international double taxation is avoided, TDs relocate tax duties from capital-importing countries to capital-exporting countries and deprive investors of the benefits of reduced at-source taxation (Braun and Zagler 2014). In order to avoid the host country`s high withholding tax on outbound passive income, many multinational companies divert foreign direct investment through a third country with a more favourable tax agreement, a practice that the literature has described as a “contractual purchase” (Dyreng et al. 2015). The OECD points out that contract purchases are one of the main concerns related to the OECD`s Erosion and Profit Project (BEPS) in 2015.