7th December 2018
Here at 6CATS we’re dedicated to sharing our knowledge of the complexities of international compliance with contractors seeking opportunities overseas and the latest developments that they need to be aware of. Last week, Bloomberg Quint reported that India and China have reaffirmed their commitment to co-operate in the fight against tax fraud by signing amendments to the Double Taxation Avoidance Agreement (DTAA) between the countries. As the two economic superpowers have become highly attractive places for contractors to pursue work, with the second and sixth largest economies in the world, respectively, it is important that professionals are made aware of such changes and what they could mean to them.
What is a DTAA?
A DTAA is a tax treaty signed between two or more countries. It enables tax-payers in these countries to avoid being taxed twice for the same income. A DTAA applies when a taxpayer resides in one country and earns income in another.
DTAAs provide clarity on how cross-border transactions will be taxed and can help encourage foreign investment. However, they can become an incentive for investors and especially multinational companies to route investments through low-tax regimes and easily evade taxation. This regularly occurred in India until recently via foreign investment from Mauritius. With China losing $66.8 billion and India losing up $41.17 billion as a result of tax avoidance per year, amending the agreements to recoup these lost funds is of huge importance to the countries.
Here’s what happened last week:
India and China signed a protocol on November 26th to amend their DTAAs for the avoidance of double taxation and for the prevention of tax evasion with respect to income taxes. According to the Chinese finance ministry:
“The protocol updates the existing provisions for the exchange of information to meet the latest international standards.”
This also incorporates changes required to implement the minimum standards of the G20 and OECDs Action Plan on Base Erosion and Profit Shifting Project, aimed at stopping multinationals from shifting profits to tax havens.
Why should contractors care about India and China’s DTAA?
The countries renewed affirmation towards co-operation is just another step in their increased efforts at halting tax evasion. The fact that China has very recently aggressively pursued the country’s most famous woman, Fan Binbing, shows that no-one is above the law. Be it individual or corporation, harsh penalties are being doled out to those who fall foul of legislation.
If people and organisations this high profile are being targeted, then it’s inevitable that contractors should expect the same scrutiny. Furthermore, collaboration is increasing worldwide. With more countries signing up to and sharing information under the Common Reporting Standard, and constantly improving tax technology giving authorities greater ease with which to share records between themselves, remaining compliant is more important than ever. Factoring this in with the complexity of some of these tax systems makes it a real possibility that you could find yourself breaching the law unintentionally. To avoid this, we recommend employing the services of an expert contractor management service who knows how to operate in the often uncertain world of international tax and compliance.
Contact us today: