Thursday Dec 26, 2024
Thursday Dec 26, 2024
Monday, 1 February 2016 00:00 - - {{hitsCtrl.values.hits}}
Mr. Suresh R. I. Perera
Ms Dayani De Silva
Sri Lanka has a network of almost 42 Double Taxation Treaties (DTAs) which are aimed towards the elimination of double taxation. With globalisation, cross border trading is a key in any economy. The use of double tax treaties was discussed in detail at the Seminar organised by the Association of Chartered Certified Accountants (ACCA) titled “An Insight to Double Tax Treaties” held at the Kingsbury Hotel recently .
The keynote speakers were KPMG Principal Tax & Regulatory Suresh R. I. Perera, and former Inland Revenue Commissioner General & former advisor on fiscal affairs to the Ministry of Finance, Dayani De Silva.
Explaining the role and fundamental concepts of Double Tax Treaties and the creation of Permanent Establishment under Double Tax Treaties Dayani De Silva said a typical DTA will contain articles covering various areas. The Double Tax Treaties are vital in order to eliminate double taxation, reduce withholding taxes on cross-border investments and prescribe how certain profits are to be calculated. She explained the process of entering in to a DTA, where the two countries will start off with a model convention which is a template containing the standard articles. Each country will come to the negotiating table with its list of conditions. The treaty that is ultimately signed is therefore the culmination of rounds of negotiations, compromises and tradeoffs. She said that this was the reason why every treaty is unique and the particular treaty must be referred to whenever an issue arises pertaining to the two countries.
She further said that Permanent Establishment (PE) is an important concept relating to business income in accordance with accepted principles of international taxation. She went on to explain the definitions of PE which come under 3 broad categories that comprise of Basic rule (asset type) PE, Construction/Service clause (activity type) PE and Agency type PE. She also emphasised the difference between the UN Model and the OECD model especially in relation to ‘Permanent Establishment’. She further stated that a PE would only be taxed on the profits attributable to the PE as per Article 7, Business profits of the DTA.
Suresh R. I. Perera in his address referred to the different model conventions and stated that Article 2 listed the taxes to which the Double Taxation Treaties is applicable. He referred to examples and mentioned that most double tax treaties apply only to income tax and few treaties specifically refer to income tax on BOI registered enterprises. He referred to the concept of ‘Resident’ and the rules to apply to ascertain the country of residence which is fundamental to identifying the applicable double tax treaty. He mentioned that the article related to ‘Dividend’ ‘Interest’ and ‘Royalty’ are significant and that for transaction between treaty countries the tax rates provided in the Double Tax Treaty would apply. He referred to the tax rates provided in selected treaties and also highlighted that the tax rate applicable for dividend payment is only 7.5% as per the new Sri Lanka India Double Tax Treaty.
Other key topics discussed include relief for expatriates under the Double Tax Treaties and Methodologies of elimination of double taxation under the treaties.
