India and France Sign Amended Double Taxation Avoidance Protocol
In a significant development for bilateral economic relations, India and France have formally amended their Double Taxation Avoidance Convention (DTAC). The revised protocol, signed during the recent state visit of French President Emmanuel Macron to India, introduces several key changes aimed at providing greater certainty and alignment with international tax standards.
Key Changes in the Amended Tax Treaty
The amending protocol brings substantial modifications to the existing tax framework between the two nations. One of the most notable changes is the provision for taxation of capital gains based on the residency of the company. This move is expected to eliminate ambiguities and create a more predictable tax environment for cross-border investments.
Additionally, the protocol has deleted the Most Favoured Nation (MFN) clause from the agreement. This deletion is seen as a strategic step to bring greater stability and certainty to the taxation regime, preventing automatic application of more favourable terms that India might negotiate with other countries in the future.
Revised Taxation of Dividends and Technical Services
The amended agreement introduces a significant change in how dividends are taxed. Previously, a single tax rate of 10% applied to all dividend income. The new protocol establishes a split rate system:
- 5% tax rate for shareholders holding at least 10% of the capital
- 15% tax rate for all other cases
This differentiated approach aims to encourage long-term strategic investments while maintaining appropriate taxation for portfolio investors.
Furthermore, the definition of 'fees for technical services' has been revised to align with the definition used in the India-US Double Taxation Avoidance Agreement. This harmonization is expected to reduce interpretation disputes and create consistency in how technical service fees are treated across India's major tax treaties.
Expanded Scope and Enhanced Cooperation
The protocol also expands the concept of 'permanent establishment' by introducing a Service PE (Permanent Establishment) provision. This expansion broadens the circumstances under which a foreign enterprise can be considered to have a taxable presence in the other country, particularly for service-related activities.
Beyond these substantive changes, the amended treaty includes updated provisions on the exchange of information between tax authorities. Perhaps most significantly, it introduces a new Article on assistance in the collection of taxes, bringing the agreement in line with contemporary international standards and enhancing the ability of both countries to combat tax evasion.
Formal Signing and Implementation
The protocol was formally signed by Ravi Agrawal, Chairperson of the Central Board of Direct Taxes (CBDT), representing the Government of India, and Thierry Mathou, Ambassador of France to India, representing the French government. This signing ceremony took place during President Macron's visit, underscoring the importance both nations place on strengthening economic cooperation through improved tax frameworks.
The amended DTAC is expected to provide greater clarity and predictability for businesses and investors operating between India and France, potentially boosting bilateral trade and investment flows while ensuring fair taxation practices in accordance with evolving global norms.
