2. What are Tax Treaties?
- A tax treaty is a bilateral agreement between two countries designed to resolve issues related to double taxation on the income of their respective citizens.
- This agreement determines the amount of tax each country can levy on a taxpayer's income, capital, estate, or wealth.
- Tax treaties are crucial when individuals or businesses invest in foreign countries.
- They prevent double taxation of income by determining whether the source country (where the investment is made) or the residence country (home country of the investor) has the taxation rights on the investment income.
- The issue of double taxation is resolved by these treaties, ensuring that income isn't taxed twice.
- However, countries considered tax havens, which usually have low or no corporate taxes, typically do not engage in tax treaties.
3. Working Mechanism of Tax Treaties
- There are two primary models of tax treaties: the Organization for Economic Co-operation and Development (OECD) Model and the United Nations (UN) Model Convention.
- The OECD model convention leans more toward capital-exporting countries, allowing the residence country to tax certain income categories of its residents earned in the source country.
- On the other hand, the UN model often favors the source country of investment, especially benefiting developing countries.
- These models establish guidelines regarding the allocation of taxing rights between the involved countries.
4. Withholding Taxes Policy
- A critical aspect of tax treaties is their policy on withholding taxes. This policy determines the tax rates imposed on income like interest and dividends for non-residents.
- For example, a tax treaty between two countries might set a 10% bilateral withholding tax rate on dividends.
- Under U.S. tax treaties with multiple countries, reduced rates or exemptions are often applied to foreign residents' tax liabilities.
- However, U.S. residents might be subject to similar benefits or exemptions from foreign taxes on specific types of income they receive from foreign sources.
- These treaties typically work reciprocally, applying to residents of both treaty countries.
- Tax treaties might also include a "saving clause" to prevent individuals from exploiting the treaty to evade domestic taxation.
- Residents of countries without tax treaties with the U.S. are subject to U.S. tax rules for any income earned within the U.S. without any treaty benefits.
- Moreover, some U.S. states do not adhere to the provisions of tax treaties, which is crucial for residents to consider regarding their tax obligations within different states of the U.S.
5. Most Favored Nation
The most favored nation (MFN) principle is a principle of international trade law that requires a country to treat all of its trading partners equally. This means that a country cannot offer more favorable trade terms to one country than it offers to another country.
The MFN principle is also applied to tax treaties. This means that a country must offer the same tax benefits to all of its treaty partners, even if it has a more favorable tax treaty with another country.
The MFN principle has a number of benefits, including:
- It promotes fair trade by ensuring that all countries are treated equally.
- It encourages countries to negotiate tax treaties with each other.
- It helps to reduce the complexity of international tax law.
In addition to these benefits, the MFN principle can also help to promote economic growth and development. By providing all countries with equal access to trade and investment opportunities, the MFN principle can help to create a more level playing field for all businesses.
6. Conclusion
Tax treaties play a significant role in international taxation by delineating which country has the right to tax specific types of income. Understanding these agreements is essential for individuals and businesses engaged in cross-border financial activities to ensure compliance with tax laws and reduce the risk of double taxation.
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For Prelims: Tax Treaty, Organization for Economic Co-operation and Development Model, the United Nations (UN) Model Convention, most favored nation, For Mains:
1. Discuss the significance of tax treaties in the context of international taxation. How do tax treaties help resolve the issue of double taxation for individuals and businesses engaged in foreign investments? (250 Words)
2. Examine the ethical implications of tax treaties and the role of civil society in tax governance. (250 Words)
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Previous Year Questions
1. With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct? (UPSC 2018)
1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the "Double Taxation Avoidance Agreements".
Select the correct answer using the code given below:
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2
Answer: D
2. Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022)
1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group.
2. India is not a member of OECD.
3. OECD is funded by its member countries.
Which of the statement given above is/ are correct?
A. 1 only B. 1 and 2 only C. 2 and 3 only D. 1, 2 and 3 E. 2 only
Answer: D
3. Consider the following statements: (UPSC 2019)
1. The United Nations Convention against Corruption (UNCAC) has a 'Protocol against the Smuggling of Migrants by Land, Sea and Air.
2. The UNCAC is the ever-first legally binding global anti-corruption instrument.
3. A highlight of the United Nations Convention against Transnational Organized Crime (UNTOC) is the inclusion of a specific chapter aimed at returning assets to their rightful owners from whom they had been taken illicitly.
4. The United Nations Office on Drugs and Crime (UNODC) is mandated by its member states to assist in the implementation of both UNCAC AND UNTOC.
Which of the statements given above are correct?
A. 1 and 3 only B. 2, 3 and 4 only C. 2 and 4 only D. 1, 2, 3 and 4
Answer: C
4. The Most Favoured Nation (MFN) Clause under WTO regime is based on the principle of (CDS GK 2017)
A. Non-discrimination between nations
B. Discrimination between nations
C. Differential treatment between locals and foreigners
D. Uniform tariff across commodities
Answer: A
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KOZHIKODE AS " CITY OF LITERATURE"
Gwalior from Madhya Pradesh was also among the 55 new cities to join the network.
These cities have been handpicked to represent seven creative fields — crafts and folk arts, design, film, gastronomy, literature, media arts, and music. Kozhikode was included in the category of literature and Gwalior in the category of music.
2. Kozhikode as a Literature City
- The city of Kozhikode in North Kerala is renowned for its significant contributions to the literary and cultural landscape of the state.
- It is a hub for various prominent figures in the world of literature and culture. Kozhikode, where several leading media organizations have their headquarters, boasts numerous publishing houses and libraries that greatly enrich its literary heritage.
- Notably, Kozhikode holds the distinction of being the birthplace of the first Malayalam novel, "Kundalatha," written by Appu Nedungadi in 1887.
- The city has also been a nurturing ground for a plethora of illustrious writers, including S K Pottekkatt, Vaikom Muhammad Basheer, Uroob, Thikkodiyan, NN Kakkad, P Valsala, Akbar Kakkattil, Punathil Kunjabdulla, and MT Vasudevan Nair, who have earned acclaim for Kozhikode.
- Over the past half-century, Kozhikode has also witnessed the emergence of many talents in the fields of film and theatre.
3. What is the UNESCO Creative Cities Network (UCCN)?
- In 2004, the UCCN was established with the purpose of fostering collaboration among urban centers that recognize creativity as a vital element for sustainable urban growth. Currently, it comprises 350 cities spanning more than a hundred countries.
- The network's primary objective is to harness the potential of cultural industries in creative, social, and economic aspects.
- Its inception aligns with UNESCO's objectives of preserving cultural diversity and bolstering resilience against challenges like climate change, increasing inequality, and rapid urbanization. The UCCN also advocates for the integration of a creative ethos in urban planning and the development of innovative solutions for urban issues.
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3.1. Objectives of UNESCO Creative Cities Network (UCCN)
- The UNESCO Creative Cities Network enables member cities to recognize the importance of fostering creativity as a fundamental element of urban advancement, particularly through collaborative initiatives that involve both the public and private sectors, as well as civil society.
- The network's primary aim is to establish hubs of creativity and innovation, while simultaneously expanding opportunities for individuals within the cultural sector. These cities are firmly committed to achieving the United Nations' sustainable development goals.
- The network's objectives are put into action at both the city level and the international level, notably through the exchange of experiences, knowledge sharing, and the dissemination of best practices.
- This involves professional and artistic exchange programs, research initiatives, and assessments of the creative cities' experiences, among other activities.
- A significant feature of the network is the annual conference attended by mayors and other stakeholders from network cities, offering a unique opportunity to strengthen connections among creative cities worldwide.
- The primary purpose of the conference is to facilitate the exchange of practical information regarding city policies and initiatives, as well as to encourage collaboration between cities.
- The most recent conference was hosted in Santos, Brazil, and the preceding year's conference took place in Istanbul. The forthcoming conference is scheduled for July 2024 and will be held in Braga, Portugal.
Every four years, member cities are required to submit a Membership Monitoring Report, with the aim of demonstrating their steadfast commitment towards the implementation of the UCCN Mission Statement. They present an action plan for the following four years, providing insights into their achievements and lessons learnt, as well as the impact of the designation.
Source: indianexpress
OPERATION CACTUS
- Operation Cactus was the code name for the Indian intervention in the 1988 coup attempt in the Maldives.
- On November 3, 1988, a group of Maldivian plotters and 80 Lankan fighters arrived in Malé, the capital of the Maldives, aboard a couple of Lankan freighters.
- They were armed with heavy machine guns, AK-47s, grenades and mortars, and quickly captured important infrastructure in the city, including the headquarters of the NSS, the Maldives' sole armed force.
3. A Decade of Coup Attempts
- Maldives, located in the Indian Ocean, faced political instability and economic troubles under the 30-year rule of President Maumoon Abdul Gayoom, during which three attempted coups occurred in the 1980s.
- The 1988 coup, the last of the series, would have succeeded without Indian intervention.
- The 1988 coup was orchestrated by Maldivian businessman Abdullah Luthufee and Ahmed "Sagaru" Nasir, with the support of Uma Maheswaran, the leader of the People's Liberation Organisation of Tamil Eelam (PLOTE), a militant Lankan Tamil organization.
4. India's Involvement
- As the coup unfolded, SOS messages were sent worldwide. Prime Minister Rajiv Gandhi chaired a crisis committee meeting, and the 50th Independent Parachute Brigade, led by Brigadier Farukh Bulsara, was activated in Agra.
- Colonel Subhash C Joshi's 6 Para was designated to lead the operation. Indian soldiers, led by High Commissioner Arun Bannerjee, were quickly dispatched to Maldives.
- Indian troops landed in Hulhulé, Maldives' main airport, and their arrival surprised the rebels.
- Ignorant of the actual strength of the Indian troops, the rebels overestimated their numbers and decided to abandon their mission.
- Indian paratroopers secured the airport and then rescued President Gayoom in Malé.
- Under orders from Brigadier Bulsara, the Indian paratroopers fired at the fleeing rebel ship, slowing it down.
- The Indian Navy, with frigates INS Betwa and INS Godavari, intercepted the ship and rescued hostages before it could enter Sri Lankan territorial waters.
- The attempted coup resulted in the loss of 19 lives, and 68 Sri Lankan fighters and seven Maldivians were arrested and put on trial.
- Four, including Luthufee, were initially sentenced to death but had their sentences commuted at the request of PM Rajiv Gandhi. Indian paratroopers remained in Malé for over a fortnight, establishing a lasting relationship with the Maldives.
5. Conclusion
Operation Cactus remains a significant chapter in the history of India-Maldives relations, a testament to India's willingness to protect its neighbors in times of crisis. Despite occasional strains in the bilateral relationship, the bond forged during this operation continues to shape the diplomatic ties between the two nations.
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For Prelims: Operation Cactus, INS Betwa, INS Godavari, India-Maldives, People's Liberation Organisation of Tamil Eelam,
For Mains:
1. Discuss the challenges and opportunities for India in maintaining its influence in the Indian Ocean region? (250 Words)
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Previous Year Questions
1. Which one of the following pairs of islands is separated from each other by the ‘Ten Degree Channel’? (UPSC 2014) (a) Andaman and Nicobar Answer: A 2. Consider the following rivers: (UPSC 2015) 1. Vamsadhara 2. Indravati 3. Pranahita 4. Pennar Which of the above are tributaries of Godavari? A. 1, 2 and 3 B. 2, 3 and 4 C. 1, 2 and 4 D. 2 and 3 only Answer: D 3. The Liberation Tigers of Tamil Eelam was a Tamil Militant organization that was based in _______. This question was previously asked in (UPRVUNL JE ME 2021) A. Indonesia B. Malesia C. Sri Lanka D. Maldives Answer: C Mains: 1. What do you understand by ‘The String of Pearls’? How does it impact India? Briefly outline the steps taken by India to counter this. (UPSC 2013) 2. Discuss the political developments in the Maldives in the last two years. Should they be of any cause for concern to India? (UPSC 2013) |
ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)
- The Organisation for Economic Co-operation and Development, often abbreviated as OECD, is an international organization that was established in 1961.
- The OECD is comprised of 38 member countries, primarily from Europe and North America, which cooperate to promote economic growth, improve living standards, and address global challenges.
- The organization serves as a forum for member countries to discuss and coordinate policies, share information, and collaborate on a wide range of economic and social issues.
- The OECD is known for its comprehensive reports, including the OECD Economic Outlook, which provides economic analysis and projections for member countries, and the OECD Better Life Index, which assesses the well-being and quality of life in various countries.
- While the OECD primarily consists of high-income countries, it also collaborates with non-member countries and international organizations to achieve its goals. The organization plays a significant role in shaping international economic and social policies and promoting cooperation among nations.
- The OECD conducts research and analysis on various economic topics and provides policy recommendations to member countries to support sustainable economic growth
- The organization works to reduce trade barriers and promote trade liberalization among its member countries, contributing to economic integration and cooperation.
- The OECD collects and analyzes data on economic and social trends, allowing member countries to compare their performance and learn from one another.
- The OECD produces reports, recommendations, and guidelines on various policy areas, such as taxation, education, health, environment, and more
- The OECD addresses pressing global challenges, such as climate change, income inequality, and social issues, by providing a platform for cooperation and policy development
- The United Nations (UN) Model Convention, officially known as the "United Nations Model Double Taxation Convention between Developed and Developing Countries," is a document created by the United Nations to serve as a model template for bilateral tax treaties or double taxation conventions between countries.
- The main purpose of this model convention is to provide a framework for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital.
- The UN Model Convention is specifically designed to address the tax-related issues that may arise when developed and developing countries enter into tax treaties with each other.
- It takes into account the differing economic circumstances and interests of countries at different stages of development.
- The model convention provides a basis for negotiation between two countries to establish the allocation of taxing rights over various types of income (such as dividends, interest, royalties, and capital gains) and outlines the rules for determining which country has the primary taxing jurisdiction.
Key differences between the Organisation for Economic Co-operation and Development (OECD) and the United Nations (UN) Model Convention:
| Subject | OECD Model Convention | UN Model Convention |
|---|---|---|
| Purpose | Designed for tax treaties between developed countries. | Designed for tax treaties between developed and developing countries. |
| Scope | Primarily focuses on treaties among high-income nations. | Addresses tax treaties involving a mix of developed and developing countries. |
| Member Countries | Comprised of 38 member countries, mainly from Europe and North America. | Represents a broader membership of United Nations member states. |
| Economic Focus | Emphasizes the tax arrangements between economically developed countries. | Addresses tax treaty issues with an emphasis on the economic disparities between developed and developing nations. |
| Data and Research | Conducts extensive economic research and analysis. | Incorporates socioeconomic considerations and development issues in treaty provisions. |
| Policy Recommendations | Provides policy recommendations related to tax issues among member countries. | Offers a framework for fair tax treaties that consider the interests and needs of both developed and developing nations. |
| Emphasis on Development | Less focus on addressing economic development and disparities between countries. | Places a stronger emphasis on development concerns, helping developing countries gain tax revenues and economic growth. |
| Applicability | Used as a reference for high-income countries in their tax treaty negotiations. | Used as a reference for any country, regardless of income level, when negotiating tax treaties with other nations. |
| Integration with the UN | Not directly affiliated with the United Nations. | Developed and endorsed by the United Nations, reflecting its principles and goals. |
| Legal Status | Not a legally binding treaty; serves as a guideline. | Not a legally binding treaty; serves as a model for countries to base their bilateral tax treaties on. |
5. Way forward
OECD and UN Model Conventions aim to provide a framework for international tax cooperation and the prevention of double taxation. The choice of which model to use in a specific tax treaty negotiation often depends on the circumstances and interests of the countries involved.
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For Prelims: Economic and Social Development For Mains: General Studies II: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s Interest |
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Previous Year Questions 1.Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022) 1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group. 2. India is not a member of OECD. 3. OECD is funded by its member countries. Which of the statement given above is/ are correct? A.1 only B.1 and 2 only C.2 and 3 only D.1, 2 and 3 E.2 only Answer (D)
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Source: indianexpress
