State briefly the objectives and the factors of a tax treaty made between two contracting States.

Objective of a Tax treaty As per OECD Model Conventions: Principle objective of double taxation conventions is to promote, by eliminating international double taxation, exchange of goods and services, movement of capital and person. Also to prevent tax avoidance and evasion. As per UN Model Conventions: The principal objectives of UN Model Conventions are as follows: To Protect tax payer from double taxation To encourage free flow of international trade and investment To encourage transfer of technology To prevent discrimination between taxpayer To provide a reasonable element of legal and fiscal certainty to investors and traders To arrive at an acceptable basis to share tax revenues between two states To improve the co-operation between taxing authorities in carrying out their duties In order to advance the object of avoiding/reducing the hardship caused by double taxation, the following factors are considered in tax treaties: Scope of the treaty, taxes covered, entities covered. Determination of residential status of a person for the purpose of tax credit and also to determine whether a person is entitled to treaty benefits (limitation of benefits). Provision for reduced rate of tax in the country / state of Source. Exchange of information. Provision for procedural frame work for enforcement, availing credit of taxes paid, collection of taxes and dispute resolution etc.