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International Tax developments in 2011



The year 2011 witnessed substantial development in India on international tax matters. Judicial pronouncements by various forums indicate an approach towards substance rather than form, by reiterating some of the principles or laying down some newer approaches to interpret the international tax law. Further, the revenue authorities have been perceived as adopting an aggressive stance to safeguard tax collection in the face of weakening world economies and stiff international competition.

On the international front as well, we have witnessed significant developments in curbing tax avoidance and monitoring of tax havens. Besides, an increasing number of exchange agreements are being entered into between the territories and the countries. To stem the uncertainties relating to interpretation of international tax between bilateral countries, an arbitration mechanism has been suggested to provide certainty and reconciliation on such matters. The OECD has been in the forefront of resolving some of the international tax issues by releasing discussion papers on contentious aspects. We have also seen the UN release its 2011 version of the Model Convention and the Commentary after a gap of a decade. The UN is also considering taking further work in the area of tax treatment of services, as well as for several other articles of the UN Model. Analytical papers amongst other are proposed to be prepared on classification of hybrid entities; treatment of “auxiliary/ancillary activities” and taxation by electronic means.

This document aims at compiling some of the international tax pronouncements outlining the thought processes, the continuing uncertainty in some areas, and the new approaches which hitherto were not conceived, but could provide the background to the understanding needed for adoption in future years. Additionally, some international cases of importance and developments from the OECD and UN have also been highlighted.

We trust you shall find the same useful and we look forward to your suggestions and comments.