Question

Q8) The practice featuring residents of a third country taking advantage of a beneficial tax treaty between two countries to lower his tax liability is called

• A. a) Round tripping
• B. b) Treaty shopping
• C. c) Both
• D. d) None

Answer 1

The correct option is B

b) Treaty shopping

Ans: B
Explanation: In Treaty shopping, a resident of a third country invests by taking advantage of a fiscal treaty between India and another contracting state. This has greatly contributed in encouraging FDI in the country but has been a medium of tax evasion.

Round tripping refers to money from one country going out through unofficial channels and being invested back into the same country from outside to avail of tax benefits under the double tax avoidance agreement (DTAA).