Source rule

A source rule is a provision in domestic tax law or in a tax treaty that identifies the jurisdiction in which a particular category of income is regarded as arising. These rules allocate taxing rights between countries and differ depending on the nature of the income—such as employment earnings, interest, royalties, dividends, rental income, or business profits. Illustrative rule: Interest is often treated as arising in the country where the party making the payment is resident. Example: If an Indian company pays interest to a lender based in the United States, the payment is treated as Indian-source interest. As a result, India may levy withholding tax on the amount paid.