India and France Sign Protocol to Amend Double Taxation Avoidance
Convention
Ø
Amending Protocol to India-France DTAC to
boost investment and strengthen economic cooperation; Aligns tax treaty with international
standards
1.
Agreement Signed:
India and France signed a Protocol amending the India–France Double Taxation
Avoidance Convention (signed on 29 September 1992).
2.
Signatories:
o
Mr. Ravi Agrawal, Chairperson, Central Board of
Direct Taxes
o
Mr. Thierry Mathou, Ambassador of France to India
3.
Capital Gains Taxation:
o
Full taxing rights on capital gains from sale of
shares granted to the country where the company is resident.
4.
Deletion of MFN Clause:
o
The Most-Favoured-Nation (MFN) Clause has been
removed.
o
This resolves long-standing interpretational
disputes related to its application.
5.
Revised Dividend Tax Rates:
o
Earlier: Single 10% tax rate.
o
Now:
§ 5% tax
where the beneficial owner holds at least 10% of capital.
§ 15% tax
in all other cases.
6.
Fees for Technical Services (FTS):
o
Definition aligned with the India–United States
Double Taxation Avoidance Agreement.
o
Ensures clarity and harmonization in
interpretation.
7.
Expansion of Permanent Establishment (PE):
o
Introduction of “Service PE,” expanding taxable
presence rules.
8.
Exchange of Information (EOI):
o
Updated provisions in line with international
standards.
o
Enhances transparency and tax cooperation.
9.
Assistance in Collection of Taxes:
o
New article added to facilitate cross-border tax
recovery.
10.
Incorporation of BEPS MLI Provisions:
o
Integrates applicable provisions of the
Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent
BEPS (MLI), already ratified by both countries.
11.
Entry into Force:
o
Effective after completion of domestic legal
procedures in both countries and as per agreed terms.
12.
Significance:
o
Aligns treaty with global tax standards.
o
Enhances tax certainty for investors.
o
Expected to boost bilateral investment, technology
transfer, and economic cooperation.
During
the recent visit of the President of France to India, the Government of the Republic
of India and the Government of the French Republic have signed a Protocol amending
the India-France Double Taxation Avoidance Convention, signed on 29 September 1992
(‘India-France DTAC’). The Amending Protocol was signed by Mr. Ravi Agrawal, Chairperson,
Central Board of Direct Taxes, Government of India, and Mr. Thierry Mathou, Ambassador
of France to India, on behalf of their respective Governments.
The
Amending Protocol provides full taxing rights in respect of capital gains arising
from sale of shares of a company, to the jurisdiction where such company is a resident.
The Amending Protocol also deletes the so-called Most-Favoured-Nation (MFN) Clause
from the Protocol to the DTAC, thereby bringing to rest all issues relating to it.
The Amending Protocol also modifies the taxation of income from dividends by replacing
a single rate of 10% of tax with a split rate of 5% for those holding at least ten
percent of capital and 15% of tax for all other cases. It also modifies the definition
of ‘Fees for Technical Services’ by aligning it with the definition in India US
Double Taxation Avoidance Agreement, and expands the scope of ‘Permanent Establishment’
by adding Service PE.
The
Amending Protocol also updates the provisions on Exchange of Information and introduces
a new Article on Assistance in Collection of Taxes, as per international standards.
This would enable and facilitate seamless exchange of information and strengthen
mutual tax cooperation between India and France. The Amending Protocol also incorporates
within the DTAC, the applicable provisions of BEPS Multilateral Instrument (MLI),
that had already become applicable consequent to the signing and ratification of
MLI by India and France.
The
changes introduced through the Amending Protocol shall enter into effect subsequent
to the completion of internal procedures under the laws of both the countries and
subject to the terms agreed between the two countries.
The
Amending Protocol updates the India-France DTAC to the latest international standards,
in a manner that balances the interests of both India and France, and updates it
in accordance with international standards. The Amending Protocol will provide greater
tax certainty to the taxpayers and boost flow of investment, technology and personnel
between India and France, and thereby strengthen the economic relationship between
the two countries.