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April 2025

Issues Relating To ‘May Be Taxed’ In Tax Treaties

By Mayur B. Nayak | Tarunkumar G. Singhal | Anil D. Doshi | Mahesh G. Nayak, Chartered Accountants
Reading Time 23 mins

The term ‘may be taxed’ has been commonly used in tax treaties since before the OECD  Model Tax Convention was first published in 1963. In India, there has been significant litigation on whether the term indicates an exclusive right of taxation. While the CBDT vide Notification in  2008 has clarified the issue, certain ambiguities still exist.

In this article, the authors seek to analyse the said issue on whether the term ‘may be taxed’ in tax treaties refers to an exclusive right of taxation to any Contracting State.

BACKGROUND

The allocation of taxing rights in respect of various streams of income in DTAAs can generally be bifurcated into 3 categories:

a. Category I – May also be taxed:

Some articles provide that the particular income may be taxed in a particular jurisdiction (typically the country of residence) and also states that the income ‘may also be taxed’ in the other Contracting State, typically with some restrictions in terms of tax rates, etc. The articles on dividend, interest, royalty / fees for technical services, generally provide for such type of allocation of taxing right.

For example, Article 10(1) of the India – Singapore DTAA, dealing with dividends prov

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