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The same transfer-pricing profit is taxed by two countries in the hands of two different associated enterprises, and the applicable tax treaty provides for assistance between competent authorities.…

Question and options

The same transfer-pricing profit is taxed by two countries in the hands of two different associated enterprises, and the applicable tax treaty provides for assistance between competent authorities. How is this double taxation described, and which process can address it?

  1. Economic double taxation, addressed by unilateral relief under section 160

  2. Economic double taxation, addressed by the mutual agreement procedure

  3. Juridical double taxation, addressed by the mutual agreement procedure

  4. Juridical double taxation, addressed by credit for foreign tax under the treaty

Answer and explanation

Correct answer: B - Economic double taxation, addressed by the mutual agreement procedure

Tax on the same profit in the hands of two different taxpayers is economic double taxation; juridical double taxation is the same income taxed twice in the hands of the same person. Where the treaty provides for it, the competent authorities resolve the transfer-pricing overlap through the mutual agreement procedure; unilateral relief under section 160 of the Income-tax Act, 2025 is a credit to the same resident taxpayer and applies only where there is no agreement.

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