In the present age of economic globalization, both individuals and corporates are ever anxious to find ways and means of minimizing their tax burden. One way to do so is by moving to a tax haven, i.e., a tax jurisdiction, where the tax incidence is very small, sometimes even nil. Another way of doing this is to take the benefit of the double taxation avoidance agreements, entered into by one country with one or more other countries. This amounts to treaty shopping, which is a method of using or misusing the tax treaties by taking advantage by investing in low tax countries. In effect, there may be a situation where a person, resident in a third State, seeks to obtain the benefit of a double tax treaty between two other countries. MNCs shop for DTA Agreements, signed by countries to obtain fiscal advantages. It is used by investors for the following purposes:
To reduce the source country taxation.
To pay a low or zero effective rate of tax in the payee treaty country.
To pay a low or zero tax rate on payments from the payee treaty country to the tax-payer.