Sahana Balaraj, BBA. LLB (Hons.), PES University, Bangalore
ABSTRACT
Beginning from the time of the Holy Roman Empire, where only the richest of the rich had been given the privilege to pay taxes, to donations of overvalued art to museums for tax breaks, tax planning has become an important aspect of the life of the uber rich. Tax planning, is the structuring of investments, assets, commercial transactions and extends up to strategically locating corporate entities to minimize tax liability. International tax planning is largely affected by Double Tax Avoidance Agreements and the benefits conferred.
Treaty shopping is the practice of taking advantage of DTAAs by residents of third countries to reduce or eliminate their tax liabilities. This practice involves routing investments through countries that have more favorable tax treaties with the ultimate destination country. The role of DTAAs in the abuse of treaty shopping has been a growing concern for many countries, especially developing ones. To counteract this, many countries have introduced measures to curb treaty shopping, such as the limitation on benefits (LOB) provision. The LOB provision requires that only residents of a contracting state that meet certain conditions can benefit from the DTAAs. Despite these efforts, treaty shopping remains a significant challenge for many countries, and the abuse of DTAAs can have significant economic consequences.
Keywords: DTAA, Tax Planning, Tax liability Limitation on Benefits
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