New Delhi: India and France have decided to redraw parts of their three-decade-old tax treaty, signing a protocol that changes how certain cross-border transactions will be taxed going forward.
The amendment to the 1992 Double Taxation Avoidance Convention was signed during the French President’s visit to India. CBDT Chairman Ravi Agrawal signed on behalf of India, while French Ambassador Thierry Mathou represented France.
One of the more significant changes concerns capital gains arising from the sale of shares. Under the revised arrangement, the country where the company is based will have the right to tax those gains.
Officials say this brings clearer allocation of taxing rights, particularly in corporate transactions involving entities across both jurisdictions.
The protocol also deletes the Most-Favoured-Nation (MFN) clause from the earlier framework.
That clause had, over the years, become a point of legal debate, especially after India revised other treaties and dividend taxation rules. Its removal appears aimed at preventing further interpretational disputes.
Dividend taxation has been recast into a two-rate structure. A 5 per cent rate will apply where the shareholder holds at least 10 per cent of the company’s capital. In other cases, the rate will be 15 per cent. Earlier, the treaty prescribed a flat 10 per cent rate.
The definition of “Fees for Technical Services” has been aligned with language used in India’s treaty with the United States.
The concept of “Permanent Establishment” has also been expanded to include Service PE, which may have implications for companies providing services without a fixed physical base.
The protocol strengthens provisions on exchange of information and introduces assistance in collection of taxes.
It also incorporates relevant provisions of the OECD’s BEPS Multilateral Instrument, reflecting broader international tax reform efforts.
The changes will take effect after both countries complete their internal procedures.