Agreement with foreign countries or specified territories Section 90- Tax treaties vis-a-vis the Act

Issue/Justification

Section 90(2A) of the Act provides that notwithstanding anything contained in Section 90(2) of the Act, the provisions of Chapter X-A i.e. GAAR shall apply to the taxpayer even if such provisions are not beneficial to the taxpayer.

Insertion of this provision would nullify the international principle on ‘treaty overriding domestic tax laws’.

A tax treaty is a bilateral agreement entered between two sovereign governments. As per Article 26 and 31 of the Vienna Convention, a tax treaty should be implemented in good faith. Further as per Article 27 of the Vienna Convention, a government cannot invoke its internal law as a justification for its failure to perform the tax treaty. Therefore, a unilateral amendment in the domestic law of any particular country cannot override a tax treaty which has been signed with full knowledge, understanding and consent of both of the governments.

Suggestion

Given the resultant implications on the nonresident taxpayers and the same being against the internationally accepted principles, sub-section should be withdrawn.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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