Definition
DTAA (Double Taxation Avoidance)
A Double Taxation Avoidance Agreement is a treaty between two countries that prevents the same income from being taxed twice and allocates taxing rights between them.
When a person or company earns income across borders, both countries may claim the right to tax it. A DTAA resolves this by allocating taxing rights and providing relief, either by exempting the income in one country or by giving a credit for tax paid in the other. India has DTAAs with many countries.
Taxpayers can generally apply whichever is more beneficial — the treaty or domestic law — subject to anti-abuse conditions and furnishing a tax residency certificate. DTAAs interact with rules like POEM, transfer pricing and GAAR, and treaty shopping through low-tax jurisdictions has prompted renegotiations.
Related terms
- Transfer PricingTransfer pricing rules govern how transactions between related entities, often across borders, must be priced to reflect fair market value for tax purposes.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.