International Taxation

International taxation refers to the tax laws that apply to individuals or entities earning income in more than one jurisdiction (e.g., India and foreign countries). It is concerned with issues such as double taxation, transfer pricing, and tax treaties.

1. Double Taxation Avoidance Agreement (DTAA):

DTAA is a bilateral agreement between two countries to avoid the same income being taxed twice.

2. Transfer Pricing:

Transfer pricing refers to the pricing of transactions between related entities (such as parent and subsidiary companies) located in different countries.

3. Foreign Tax Credit (FTC):

India allows a foreign tax credit under Section 91 of the Income Tax Act to reduce the tax burden for Indian residents who pay taxes in foreign jurisdictions. The credit is available for taxes paid on income that is also subject to taxation in India, subject to certain conditions.

4. Permanent Establishment (PE):

A Permanent Establishment refers to a fixed place of business in a foreign country that gives rise to a taxable presence.

5. Withholding Tax (WHT):

Withholding tax is tax deducted at source from payments made to foreign entities. In India, payments like royalties, fees for technical services, and interest to non-residents are subject to withholding tax at specified rates.

FEMA (Foreign Exchange Management Act) Compliance

FEMA regulates foreign exchange transactions in India. It is designed to promote external trade and payments and to facilitate the smooth flow of foreign exchange into and out of country. FEMA applies to individuals, companies, and entities engaged in cross-border transactions.

1. Foreign Direct Investment (FDI):

FEMA governs the inflow of FDI into India. FDI is the investment by a foreign entity or individual in an Indian company, typically in the form of equity shares.

2. External Commercial Borrowings (ECB):

ECB refers to loans or borrowings raised by an Indian entity from a foreign lender. The terms and conditions for ECBs are regulated by FEMA and the RBI.

3. Foreign Exchange Transactions:

Foreign Exchange Transactions under FEMA require compliance with guidelines for current account transactions (e.g., travel expenses, remittances) and capital account transactions (e.g., investment, loans).

4. Remittances:

FEMA has restrictions on outward remittances from India. An individual or entity in India can remit money abroad for specific purposes, such as education, medical treatment, or maintenance of relatives.

5. Overseas Investments by Indian Entities:

Indian entities investing abroad must comply with FEMA provisions under the Overseas Direct Investment (ODI) guidelines.

6. Cross-border Transactions and Compliance:

Any individual or company involved in cross-border transactions (whether it’s trade, investments, or lending) must ensure compliance with FEMA provisions, including remittances, reporting, and adherence to the limits set by the RBI.

7. Reporting and Documentation:

Entities involved in foreign transactions are required to report their foreign exchange transactions through regular filings with the RBI and Authorized Dealer Banks.

• Compliance Framework for International Taxation and FEMA:
• Filing Returns
• Regular Monitoring of Cross-Border Transactions
• Documentation
• Risk of Non-Compliance