Overview of India's International Tax Treaty Policy
India's unique approach to negotiating tax treaties, including not strictly following OECD or UN models, drawing from both models, specific positions on partnership, scope of permanent establishment, agency permanent establishment, and more, detailed in the presentation by D.P. Sengupta at the BRICS Law Institute in 2016.
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Peculiarities of the international tax treaty policy of India Presentation by D.P. Sengupta BRICS Law Institute, 2016
INDIAN APPROACH IN NEGOTIATING TAX TREATIES India does not- follow either OECD or UN model have a separate published model with technical explanation. India draws from both OECD and UN model
Articles 1&2 Indian position on partnership-Foreign transparent entity not entitled to treaty benefits unless treaty says so. Special provision in some treaties- UK, USA List of taxes are generally mentioned- Normally only Income Tax in case of India Interest and penalty not covered as taxes
Article 5 Generally the scope of a PE in Indian treaties is wider. Addition in Paragraph2 of Sales outlet, Farm, Plantation. Addition of warehouse in relation to a person supplying storage facility for others. Replace construction or installation project with construction, installation or assembly project or supervisory activities in connection therewith. Period of time to be negotiated.
Article 5 Furnishing of services including consultancy services through employees or other personnel for a period to be negotiated. Omission of delivery from preparatory services Habitual maintenance of stock from which delivery is made will constitute agency PE Habitually securing order wholly or almost wholly for the enterprise will create agency PE Insurance PE provision
Article 7 Limited force of attraction in some treaties Expense deduction in the case of the PE is subject to the limitations of the domestic tax law.
Article 10 Generally no reference to jouissance shares Rate negotiated- generally 10%
Article 11 Follows UN Model- rate is not fixed at 10% Interest payable to State or specified institutions to be negotiated may be exempt
Article 12 Follows UN Model to an extent with secondary right of taxation( withholding on gross basis) to source state Rate to be negotiated Equipment leasing is treated as royalty Mostly contain a separate clause on fees for technical services (FTS)
Article 12 The term "fees for technical services" means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Article 15 (Independent Personal Services) and Article 16 (Dependent Personal Services) of this Agreement.
Article 12 Some treaties have a narrower definition where-(USA/UK) technology needs to be made available ; or where the services are ancillary or subsidiary to the application of the right, property or information to which they are related. The rate of taxation on gross basis is slightly higher as compared to where wider definition is adopted.
Articles 13&14 Right to tax gains from alienation of shares of companies with the State of which the company is resident. ( Mostly) Article 14 is retained in all the treaties. Mostly follow Normally refers to individual who is a resident rather than resident. But not uniform the UN Model. 12
Articles 21,22&23 There is a provision for professors and research scholars Article 22 generally follows the UN Model Article 23 sometimes contain the tax sparing clause. 13
Article 24 No reference to stateless persons Higher rate of tax for foreign companies- not discriminatory- at times with an upper limit 14
