Multilateral Agreement Concept

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Governments worldwide impose taxes on their citizens to finance welfare and administrative expenditures. The taxation system not only helps in revenue collection but also plays a crucial role in guiding economic growth and maintaining economic balance among different classes. The residential status of taxpayers is of paramount importance in any taxation system, as it determines jurisdiction and taxation responsibilities.

However, when economic activities span across countries, determining the appropriate jurisdiction for tax authorities becomes complex. To address the challenges of multiple jurisdictions, governments enter into bilateral agreements known as “Double Taxation Avoidance Agreements” (DTAA). DTAA aims to eliminate double taxation and involves bilateral economic agreements where countries assess the sacrifices and advantages the treaty brings for each contracting nation. These agreements promote the exchange of goods, services, people, and capital between the involved countries.

The Indian government actively engages in DTAA negotiations with various countries to help residents understand their tax jurisdictions and obligations. India has signed DTAA with 81 countries, with ongoing discussions with many others. The nature and contents of the DTAA agreements entered into by India are diverse.


The Organization for Economic Co-operation and Development (OECD) took the first international initiative regarding DTAA. OECD presented the first draft of DTAA in the ‘Model Tax Convention on Income and on Capital.’ DTAA was proposed as a tool for standardization and common solutions for cases of double taxation for taxpayers engaged in industrial, financial, or other activities in different countries. These treaties are negotiated under international law and governed by the principles laid down under the Vienna Convention on the Law of Treaties.


DTAA treaties aim to avoid and alleviate the burden of double taxation in the international arena. They provide certainty to taxpayers regarding their potential tax liability in the country where they conduct economic activities. These treaties ensure equal treatment between foreign taxpayers with a permanent enterprise in source countries and domestic taxpayers. They are made to allocate taxes between treaty nations, prevent tax avoidance, and ensure fair treatment of taxpayers with different residential statuses. Treaties also facilitate the exchange of information and other details among treaty partners.


Double Taxation Avoidance Agreements can be classified into comprehensive agreements and limited agreements based on their scope. Comprehensive agreements cover taxes on income, capital gains, and capital investments. Limited agreements focus on income from shipping and air transport, or legacies and gifts. Comprehensive agreements ensure equitable treatment of taxpayers in both countries concerning double taxation issues.

Active & Passive Income

Passive income includes income derived from investments in tangible or intangible assets, such as immovable property, dividends, interest, royalties, capital gains, and pensions. Active income, on the other hand, is income derived from actively conducting cross-border business operations or personal effort and exertion in the case of employment, including business profits, shipping, air transport, and employment income.

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