CA Final · Direct Tax Laws & International Taxation · Overview of Model Tax Conventions
Under the OECD Model Article 23, a resident of State R earns royalty income of 1,00,000 from State S, which taxed it at 10%, i.e. 10,000. R's tax on the same income at its domestic rate would be 30,000. R follows the credit method. What tax is payable in R on this income?
The tax payable in State R is 20,000. R computes tax of 30,000 on the income and allows a credit of 10,000 for tax paid in State S, which is within the ordinary credit limit, leaving a balance of 20,000.
- A20,000Correct
- B30,000
- C10,000
- D40,000
Explanation
Under the credit method (Article 23B), the residence State allows credit for source tax paid, limited to the residence tax attributable to that income. Credit is 10,000 (below the 30,000 cap). Payable in R is 30,000 minus 10,000 equals 20,000. Paying 30,000 would ignore the credit.
Did you get it right without looking?
One question tells you little. A timed set on Overview of Model Tax Conventions shows your real accuracy, how long you take and where you lose marks.
More Overview of Model Tax Conventions questions
- Meridian Holdings, a company incorporated in Country A and effectively managed from Country A, runs a fixed-base consultancy office in India…
- Under Article 23 of the OECD Model Convention, which method of relieving double taxation allows the residence state to tax worldwide income …
- Zephyr Ltd, a company incorporated in State A, has its registered office there. Its board meetings are always held in State B, where all key…
- Aarav, an Indian resident, works in State Y for Indian employer Kaveri Ltd from 1 July to 31 December of the calendar year (184 days), and h…
- Under the OECD Model Convention, Mr. Rao is a resident of both State X and State Y under their domestic laws. He has a permanent home availa…
- Kaveri Pharma Ltd, an Indian company, owns 30% of the shares of Lumen Labs BV, a company resident in a treaty country. The treaty follows OE…