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22 Supremo Amicus [1] (2020)

handle is hein.journals/supami22 and id is 1 raw text is: SUPREMO AMICUS


ISSN 2456-9704

By Yoshita Kumar
From Gujarat National Law University
Tax treaties are considered as the agreements
between independent tax jurisdictions, whose
main purpose is to allocate the taxing rights
between these states. It can be understood
that an individual or a corporate body has to
pay tax in the country in which the income is
earned and also in the country in which the
person is a resident, in essence to say the
source  jurisdiction  and  the  Resident
jurisdiction. It is clear that here the person
would be charged double for the single
income he earned and therefore tax treaties
are entered into so as to avoid double
There are two major treaties
1. OECD (Organization for Economic Co-
operation   and   Development    Model
Convention on Income and on Capital)
Model Convention on Income and on Capital.
2. UN (United Nations) Model Double
Taxation Convention between Developed
and Developing Countries.
Both The OECD and UN model income tax
treaties were designed in a way to reduce the
proportion of income that would be allocated
to source countries, with the residue allocated
to residence countries.
' Veronika Daurer & Richard Krever, Choosing
between the UN and OECD Tax Policy Models: an
African Case Study, CADMUS, 12 (2012),

But over the years it can be understood that
the OECD Model Convention favours more
to the side of developed countries with
respect to tax treaties whereas the UN Model
Convention is made to favour the developing
countries and is considered a very important
treaty for developing countries to refer to
while entering into a tax treaty.
In this paper we will analyse the reasons as to
how and why these treaties are made in such
a way.
The Model tax conventions are drafted in a
standard format and are made for the purpose
of assisting in better negotiation for the
bilateral agreement of tax between States.
Treaties are not meant to allocate taxing right
to the countries but restricting their taxing
right to so to prevent double taxation. Certain
treaties limit the source country's taxing right
and leaves more room for the host country in
which the investor or the business person is a
resident of to collect tax. In cases where two
capital exporting countries are involved it
generally has a low impact on the source
country's taxing right as both the jurisdiction
sacrifice to the other's taxing right. Where
one country is capital importing then the
treaty shifts that taxing right to the richer
country from the poorer one.1
In general, in the OECD Model the source
state may tax the business profits derived
from activities within the source state. The
state in which the company is tax resident is,
by means of the specific tax treaty, not
allowed to tax those profits, although this


PIF 6.242

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