Double Taxation Relief

One of the major risk in the International Business is the payment of taxes in both the countries i.e. the country in which the business is actually effected and in the country where the MNC is having its head office. This type of double taxation will definitely impede the growth and development of the MNCs in multiple ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two countries through two types of relief namely Bilateral Relief and Unilateral Relief.

Bilateral Relief

Under this scheme, relief against the burden of double taxation is worked out on the basis of mutual agreement between two countries. There are two types of agreements. In one type, the two concerned countries agree that certain incomes which are likely to be taxed in both countries shall be taxed only in of them or that each of the two countries should tax only a specified portion of the income. In the other type, the income subject to tax in both the countries but the assessee is given a deduction from the tax payable by him in the other country, usually the lower of the two taxes paid. This is called bilateral relief.

Unilateral Relief

There is no agreement under this scheme. Under unilateral relief, if any MNC who is resident in India in any previous year proves that, in respect of its come which accrued or arose during that previous year outside India, it has paid in country with which there is no agreement for the relief or avoidance of double taxation, income tax by deduction or otherwise, under the law in force in that country, it shall be entitled to the deduction from the Indian Income Tax payable by him of a sum calculated on such double taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. This is called unilateral relief.

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