(Case: India and France)
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Often, International Clients decide to deduct taxes for payments made to translators who live in other countries and we look on. And we don't know if it is legal or just another ploy on the part of the agency to pay as little as possible. We discuss in forums, leave blueboard remarks but are we any wiser after the whole exercise? Do we know if the agency was right in doing so?
And sometimes, even agencies are not aware if they are actually supposed to deduct taxes at source. They are not aware of the international treaties (or double taxation treaties) and they do what their accountants tell them to do - i.e. continue with TDS system. As far as the accountants are concerned, most of the accountants are used to dealing with normal national accounts systems. Quite a few of them don't know anything about international taxation. So we are left, more or less, on our own.
I'll just give my own example:
I am an Indian living in France right now. I wanted to declare my taxes in India and my accountant didn't have any idea as to what I was supposed to do. He just advised me to wait till I returned. At the same time, I know that I have to declare taxes in India as I have lived in India for last three years. According to Indian law, you are an Indian Resident and pay taxes in India if you have lived in India for 182 days or more (http://law.incometaxindia.gov.in/TaxmannDit/DispCitation/ShowCit.aspx?fn=http://law.incometaxindia.gov.in/Directtaxlaws/act2005/meaning.htm and http://law.incometaxindia.gov.in/TaxmannDit/DispCitation/ShowCit.aspx?fn=http://law.incometaxindia.gov.in/Directtaxlaws/act2005/meaning.htm) and even if you have not lived in India for 182 days in a given financial year (Indian financial year: 1st April year X to 31st March year X+1) (there are quite a few provisions that must be read together) . In fact, according to the provisions of Indian tax laws, I am an Indian resident for the last financial year. But my accountant had no idea about it.
As I had studied Income Tax Law at the University, I had some idea about these provisions and I looked up the website of Income Tax Department of India (http://law.incometaxindia.gov.in) and I knew that I have to pay taxes in India.
But the other day, I went to the French Income tax department because I needed a paper. They wanted me to file income-tax returns in France. I told them that I am an Indian national and a resident of India for the purposes of taxation and that under double-taxation laws, I was not supposed to file returns here as I had lived just 117 days in France during the French Financial year (1 January X to 31 December X). But they just said that they don't know if there was a double taxation treaty between France and India. And I didn't have a choice but to file my returns.
I did what I was told to do. But I was not convinced. I know that India has double taxation treaties with quite a few countries. So when I was at home, I checked the internet and discovered that India and France have a double taxation treaty since 1969 and it was renewed in 1994!!! Surprising for the French Income Tax Department but it is true.
You will find basic premises and rules of these treaties:
And there is a small table that gives basic details for people like you and me.
So next time you have doubts simply do a search and you'll find the text of the double taxation treaties in http://untreaty.un.org/ and the texts are available in national languages of both the countries (in case of India and France, in Hindi and French) + English.
So next time a client tells you, that they have deducted tax at source you know how to find out if they were right in doing so. And agencies can ask their accountants to look at the relevant national laws and treaties before they deduct tax at source.
(Search on google and you can actually find all the treaties in different languages: that is how I found the treaty between France and India).
(And here's what French law states: http://www.impots.gouv.fr/portal/dgi/public;jsessionid=MBIHHJI2J3W3LQFIEMRSFFGAVARW4IV1?paf_dm=popup&paf_gm=content&espId=-1&typePage=cpr02&paf_gear_id=500018&docOid=documentstandard_1029)
Note the lines:
Vous n’êtes toutefois pas concerné :
si vous êtes domicilié fiscalement dans un pays, ou un territoire qui a conclu avec la France une convention fiscale destinée à éviter les doubles impositions ;
si vous bénéficiez de revenus de source française dont le montant est supérieur à la base forfaitaire ;
[i.e. you are not concerned with all the details mentioned before (see link) if you are a fiscal resident of a country that has a double taxation treaty. And Indians, please note, that India and France have a double taxation treaty i.e. a treaty for avoiding double taxation]