Provisions of Double Tax Avoidance Agreement

The double tax avoidance agreement, also known as DTAA, is an agreement between two countries to prevent individuals and companies from being taxed twice on the same income. The agreement lays out provisions and guidelines to ensure that taxes are paid only once and that the process is carried out smoothly. In this article, we will take a look at the provisions of double tax avoidance agreements.

Taxation of Income

The primary purpose of DTAA is to prevent double taxation of income. Under the agreement, the country of residence of the taxpayer has the first right to tax the income. If the taxpayer earns income in a foreign country, the income will be taxed in the country of the source. The agreement provides provisions for determining the source of income and the applicable tax rate.

Royalties and Dividends

DTAA also covers royalties and dividends. In general, royalties are the payments made for the use of intellectual property such as patents, trademarks, and copyrights. The agreement provides a reduced tax rate or exemption for royalties paid to a foreign entity. Dividends are the payments made by a company to its shareholders. DTAA allows the source country to levy a withholding tax on dividends, which is usually reduced under the agreement.

Capital Gains

The agreement also covers capital gains, which are the profits earned from the sale of assets such as property and stocks. The agreement determines the country that has the right to tax capital gains. It also provides relief from double taxation by allowing the taxpayer to claim a credit for taxes paid in the other country.

Avoidance of Double Taxation

DTAA lays out the methods of avoiding double taxation. One of the methods is the credit method, which allows the taxpayer to claim a credit for taxes paid in the other country against their domestic tax liability. The other method is the exemption method, which exempts the income from tax in the country of residence if it has already been taxed in the source country.

Mutual Agreement Procedure

DTAA also includes a mutual agreement procedure (MAP). This procedure allows the tax authorities of the two countries to resolve disputes arising from the application of the agreement. The MAP is aimed at avoiding double taxation and ensuring that taxpayers are not subject to unfair treatment.


In summary, DTAA is an agreement designed to prevent double taxation of income. The provisions of the agreement cover taxation of income, royalties, dividends, and capital gains. The agreement also provides methods of avoiding double taxation and includes a mutual agreement procedure to resolve disputes. By understanding the provisions of DTAA, taxpayers can take advantage of reduced tax rates and avoid paying taxes twice on their income.