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Unit 12: Advance Tax Planning and Tax Relief

change in Citigroup’s ownership by “5-percent shareholders” (as defined in the Code) that Notes

exceeds 50 percentage points over a rolling three-year period.
The common stock issued pursuant to the exchange offers in July 2009, and the common
stock and tangible equity units issued in December 2009 as part of Citigroup’s TARP
repayment, did not result in an ownership change under the Code. However, these
common stock issuances have materially increased the risk that Citigroup will experience
an ownership change in the future. On June 9, 2009, the Board of Directors of Citigroup
adopted a Tax Benefits Preservation Plan. This Plan is subject to shareholders’ approval

at the 2010 Annual Meeting. The purpose of the Plan is to minimize the likelihood of
an ownership change occurring for Section 382 purposes. Despite adoption of the Plan,
future transactions in Citigroup stock that may not be in its control may cause Citigroup
to experience an ownership change and thus limit its ability to utilize its DTAs, as well as
cause a reduction in Citigroup’s tangible common equity and stockholders’ equity.
Source: Adapted from http://www.taxresearch.org.uk/Blog/2010/09/07/citis-deferred-tax-an-asset-of-dubious-worth/

12.3 Double Taxation Relief

Double taxation refers to a situation where the same income becomes taxable in the hands of the
same company or individual (tax-payer) in more than one country. Such a situation arises due to
different rules for taxation of income in different countries. If a person is resident of a country,
he/she may have to pay tax on any income earned outside that country as well. Thus, the same
person may be taxed in respect of his/her income on the basis of source of income rule in one
country and on the basis of residence in another country leading to double taxation.

In the present era of cross-border transactions across the globe, the effect of taxation is one of the
important considerations for any trade and investment decision in other countries. One of the
most significant results of globalisation is the visible impact of one country’s domestic tax policies

on the economy of another country. This has led to the need for continuously assessing the tax
regimes of various countries and bringing about necessary reforms. Where a taxpayer is resident
in one country but has a source of income situated in another country it gives rise to possible
double taxation. DTAAs lay down the rules for taxation of the income by the source country
and the residence country. Such rules are laid for various categories of income, for example,
interest, dividend, royalties, capital gains, business income etc. Each such category is dealt with
by separate article in the DTAA.

12.3.1 Main Reasons for Double Taxation

The concept of double taxation comes into existence generally due to the following reasons:
1. A Company or a person may be resident of one country but may derive income from other
country as well, thus he/she becomes taxable in both the countries.

2. A Company or a person may be subjected to tax on his/her world income in two or more
countries, which is known as concurrent full liability to tax. One country may tax on the
basis of nationality of tax-payer and another on the basis of his/her residence within its
border. Thus, a person domiciled in one country and residing in another may become liable
to tax in both the countries in respect of his/her world income.
3. A company or a person who is non-resident in both the countries may be subjected to tax in
each one of them on income derived from one of them. For example, a non-resident person
has a permanent establishment in one country and through it he/she derive income from
the other country.

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