This DTAA will ensure that tax issues dont cloud investment flows into India by some of the biggest global companies that use Hong Kong as the nodal hub for their Asia-Pacific operations. The notification enables the Central Government to enter into a double taxation avoidance agreement with SAR of Hong Kong, the finance ministry said in a statement on Thursday.
A DTAA allows a company to plead that it should be taxed in only one of the signatory countries, in this case India or Hong Kong, an autonomous region under mainland China. But the absence of the treaty complicates matters. The revenue departments case against Vodafone, which bought out Hutchs stake in the Hutchison-Essar telecom venture in India, has, in fact, been boosted by the absence of the tax agreement.
The Finance Act 2009 enabled the Indian government to enter into a DTAA with any specified territory outside India. This was done by amending Section 90 of the I-T Act. India has a double-taxation pact and a CECA with Singapore, the other Asian centre where several MNCs are headquartered.