What are International Tax Disputes?

International tax disputes occur when there is a conflict between:

1. Taxpayers and Tax Authorities: Disagreements over the interpretation of domestic tax laws or Double Taxation Avoidance Agreements (DTAAs).

2. Tax Authorities of Different Countries: Conflicts over the allocation of taxing rights between countries.

These disputes often arise due to differences in tax laws, transfer pricing adjustments, or the application of DTAAs.

Common Causes of International Tax Disputes

1. Double Taxation:

When income is taxed in two or more countries due to overlapping tax jurisdictions.

Example: A company based in India earning income from a foreign country may face taxation in both countries.

2. Transfer Pricing:

Disputes over the pricing of transactions between related entities in different countries.

Example: Tax authorities may challenge the pricing of goods or services transferred between a parent company and its subsidiary.

3. Permanent Establishment (PE):

Disputes over whether a foreign company has a taxable presence (PE) in India.

Example: A foreign company operating through a project office in India may face PE-related disputes.

4. Treaty Interpretation:

Disagreements over the interpretation of provisions in DTAAs.

Example: Disputes over the applicability of reduced tax rates or exemptions under a DTAA.

5. Withholding Tax:

Disputes over the deduction of tax at source (TDS) on cross-border payments.

Example: A dispute over whether royalty payments to a foreign entity are subject to withholding tax in India.

6. Characterization of Income:

Disputes over the classification of income (e.g., business income vs. capital gains).

Example: A foreign investor may face disputes over the tax treatment of gains from the sale of shares in an Indian company.