By Mayur B. Nayak I Tarunkumar G. Singhal I Anil D. Doshi I Mahesh G. Nayak, Chartered Accountants
In the Indian context, Tax authorities often challenge the benefits under a Double Taxation Avoidance Agreement (“DTAA” or “tax treaty”) to fiscally transparent entities (“FTEs”) such as foreign partnership firms, trusts, foundations, limited liability company (“LLC”) etc. on the premise that such entities do not qualify as a tax ‘resident’ of that country and are not ‘liable to tax’ in their home country. Whether an FTE can access the tax treaty has been a contentious issue. In this Article, we are analysing some recent judicial developments in this context.
INTRODUCTION
In order to mitigate double taxation in case of cross-border transaction(s), countries have entered into DTAA or tax treaty, which allocates the taxing rights among the Treaty Countries. One of the main conditions that need to be satisfied to access a tax treaty is that the taxpayer should be a tax ‘resident’ (i.e. taxable unit) of either or both the Treaty Countries and is ‘liable to tax’ therein. An exception to this in certain cases is where it appears that the condition of ‘liable to tax’ is subsumed in determining if the taxpayer is resident and once he is resident, whether liable or not does not matter. For example under the India - UAE DTAA, a person is ‘resident’ of UAE if he
