Arun Valera's Blog

What is a Treaty? Vienna Convention on law of treaties is known as the Bible of Tax Treaties. “Treaty” has been defined by Article 2 of Vienna Convention to mean an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation. Tax Treaty is also known as Double Taxation Avoidance Agreement (DTAA), or Agreement for Avoidance of Double Taxation (AADT) or as Double Tax Conventions (DTCs). These terms can be used interchangeably. DTAAs can either be “Comprehensive DTAA” covering all types of incomes or “Limited DTAA” which are limited to certain type of incomes only. India has entered into Comprehensive Agreement with 97 countries and Limited Agreements with 8 countries including Pakistan, Iran, Maldives. What is the need to enter into treaty between countries? Let us understand this with the help of an illustration. US In...

Recently on a trek, one of my friend asked me a simple question, which lead to a very basic discussion on investments. It included matters like things to avoid and things to choose. For the benefit of all, I reproduced the entire dialogue between us. I would be glad to receive views and things to add to it. Happy reading! “I’ve idle funds lying in my savings bank account. What should I do?” asked my friend while I managed to penguin-walk on the Chaddar Trek. I visualized this is a very big problem and I genuinely wanted to help my friend. Hence, our discussion started even on a holiday. Our education system teaches us to “earn”. Definitely, earning is important. But, more important than that is to “save”. And even more important is to “smartly invest”. The problem is that it is not taught in any school, college or even at home. Mere investment of Rs. 2,000/- to Rs. 5,000/- per month turns into crores after 20-30 years, if smartly invested. I responded to my friend, “Have you ...

“What is Interest?” I asked my students before commencing the discussion on Article 11 of the Model Tax Convention. One of my students got up and said, “Interest is a feeling or emotion that we all have towards your teaching.” Followed by a burst of celebration. Overwhelmed, while absorbing a new angle for the meaning of “Interest”, I felt proud that my students are as creative as their teacher. So, what is Interest? In simple words, Interest is a sum paid for the use of money. Let us understand the concept of Interest in the context of cross-border taxation with the help of an example. When an Indian Company borrows money by way of Loan from a person resident of Germany, the Indian Company will pay Interest at agreed rate to such Non-resident. Now, the question arises, which country gets the right to tax such Interest Income of the Non-resident? Fig. 1 Will the Interest be taxable in India, being a Source State? Or will it be taxable in Germany, being a Residenc...

I was in a bus when I woke up from my nap. She was reading a book, it was about travelling. She had said she was an avid reader. From the corner of my eye, in a stealing glance, I could see her beaming in satisfaction on reading that book. She had a pleasant face, not very pretty. But something about her looks, her speech, her eyes had a calming effect on you. She was almost a perfect example of my subjective definition of ‘beautiful’. Subjective I say, because people disagree on my choice. A lot. ‘So you like travelling’, I asked stretching my arms to ward off the laziness in my muscles. She replied an overwhelming ‘yes’, as if she was waiting for me to ask that question. Waiting for any question to which she would answer yes. It was just the way she was, I thought, judging her on the basis of the last two hours, before which she was just a stranger. My first impression was she lived in the moment, every moment. The elements in her universe seemed to be in perfect harmony. ‘W...

(Excerpts from ‘Jailor’ by Acharya Vijay Abhayshekhar Suri) A prisoner was sentenced 100 lashes every day for a robbery he committed. As the  Jailor  raised to beat him up, he shouted “Who the hell are you to beat me? I didn’t rob anything from you. Bring the man whom I robbed and he has the right to beat me up.” What will be the result? Will the  Jailor  leave him?  Certainly not. In fact, in all probabilities, he may get angry and beat him more. But then there is a point in the prisoner’s argument. Who gave the right to the  Jailor  to beat the prisoner? Only the person whom the prisoner robbed should have the right to beat him up. But it doesn’t happen like that. So the moot question again – “Who gave the right to the  Jailor  to beat the prisoner?” Answer in the story is simple – The Court. The Court decided who the criminal was and what the sentence ought to be and gave that right to the  Jailor  to execu...