During the recent visit of the President of France to India, India and France signed a Protocol amending the India–France Double Taxation Avoidance Convention (DTAC), originally signed in 1992.
Key Amendments Introduced
1. Capital Gains Taxation
- Full taxing rights on capital gains arising from sale of shares have been granted to the country where the company is resident.
- This provides clarity and reduces scope for interpretational disputes.
2. Deletion of Most-Favoured-Nation (MFN) Clause
- The so-called MFN clause in the Protocol has been deleted.
- This resolves long-standing interpretational issues regarding its applicability in relation to other tax treaties.
3. Revised Dividend Taxation Structure
The earlier single tax rate of 10% on dividends has been replaced with a split-rate system:
- 5% tax rate: Where beneficial owner holds at least 10% of capital
- 15% tax rate: In all other cases
This aligns dividend taxation more closely with international practice.
4. Modification in ‘Fees for Technical Services’ (FTS)
- The definition of FTS has been aligned with the India–US DTAA.
- Brings clarity and consistency in taxation of cross-border technical services.
5. Expansion of Permanent Establishment (PE) Definition
- Introduction of Service PE, expanding the scope of what constitutes a Permanent Establishment.
- Ensures taxation of income derived from services rendered in the source country under specified conditions.
6. Strengthened Exchange of Information & Tax Cooperation
- Updated provisions on Exchange of Information (EOI) in line with international standards.
- Introduction of a new Article on Assistance in Collection of Taxes.
- Enhances mutual cooperation and transparency between India and France.
7. Incorporation of BEPS Multilateral Instrument (MLI) Provision
- Relevant provisions of the BEPS Multilateral Instrument (MLI) have been incorporated into the DTAC.
- India and France had already signed and ratified the MLI.
- Aligns treaty with OECD Base Erosion and Profit Shifting (BEPS) standards.
Entry into ForceThe amendments will come into effect after completion of domestic legal procedures in both countries, as per agreed terms.