Question

As we have studied international taxation issues and tax treaties, you need to use that information to go a step further. Do a web search for companies who are, or have had, tax problems with a foreign country. Identify two different countries and research the issues the company had/has with the foreign country, what is the tax law or calculation in question, how was it handled, if it has been resolved, what was the resolution. What potential ethical issues do international taxation conflicts identify or spotlight.

For those two countries, locate data on the size of the international economy, including data on international trade, foreign direct investment by U.S. firms, and investment in the United States by foreign firms. Find out whether each of these countries applies a worldwide or territorial approach to international income taxation. What is the top income tax rate for those two countries?

Prepare an analysis of the data for a three-year period using Excel and graph your results. Provide a summary of the information and the inferences you can draw from it. Would you open a company in those countries?

*All information can be found online*

Answer 1

law provision

Under Article 13 (4) of the India-Mauritius DTAA, capital gains derived by a Mauritius resident from alienation of shares of a company resident in India (“Indian Company”) were taxable in Mauritius alone.

However, the Protocol marks a shift from residence-based taxation to source-based taxation. Consequently, capital gains arising on or after April 01, 2017 from alienation of shares acquired on or after 1st April 2017 of a company resident in India shall be subject to tax in India.

The Protocol provides for a relaxation in respect of capital gains arising to Mauritius residents from alienation of shares between April 01, 2017 and March 31, 2019 (“Transition Period”). The tax rate on any such gains shall not exceed 50% of the domestic tax rate in India (“Reduced Tax Rate”).

example

mauritius have no capital gain tax. so before and all people used to take advantage by transferring the funds to mauritius and investing in india for tax advantage on capital gains since due to DTAA income on capital gains by a resident of mauritius in india should suffer tax only in resident country ie.e mauritius and hence tax is zero people used this route. but after the trasition period this is not possible. the same capital gain taxed in india of 50% from F.Y. 19-20

let a mauritius resident invested in F.Y.19-20.

purchased on 1/4/2019 - 1000shares @ 250rs = rs2,50,000

sold on 1/3/2020 - 1000shares @ 300rs = rs.3,00,000

short term capital gain (since holded less than 12month) = rs50,000

tax on shortterm capital gain is 15%

but due to treaty only 50% can be taxed in india

so amount of tax due to treaty = (50000)*15%*50% = rs3750