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India-Spain Double Taxation Avoidance Agreement (DTAA)

The India-Spain Double Taxation Avoidance Agreement (DTAA) was initiated in accordance with the provisions agreed upon in the Convention for Avoidance of Double Taxation with Spain on February 8, 1993. An amending protocol was subsequently signed on October 26, 2012, and it came into effect on December 29, 2014. However, it took nearly five years for India to issue a notification under the Income-tax Act, 1961, to bring the DTAA into force, which finally occurred on August 27, 2019.

Applicability of the DTAA

The India-Spain DTAA applies to individuals and entities that are residents of one or both of the contracting states. It covers the following taxes in each country:

In Spain:

  • The income tax on individuals.
  • The corporation tax.
  • The income tax on non-residents.
  • The capital tax.

In India:

  • The income tax, including any surcharge.
  •  
  • Wealth tax.

Key Highlights

Here are the key highlights of the India-Spain DTAA:

  1. Exchange of Information: The competent authorities of both contracting states exchange information relevant to their domestic tax laws to carry out the provisions of the DTAA. This information is treated as confidential and is disclosed only upon a formal request.
  2. Effective Dates: The amending protocol became effective two months after the later of the notifications and had the following effects:
    • In the case of withholding taxes, it applies to amounts paid on or after the amending protocol’s effective date.
    • In the case of other taxes, it applies to taxes levied for taxable years beginning on or after the amending protocol’s effective date.
    • In all other cases, it applies on or after the amending protocol’s effective date.
  3. Assistance in Revenue Collection: In line with international standards and in furtherance of provisions from the Organisation for Economic Co-operation and Development (OECD), the contracting states are committed to assisting each other in the collection of “revenue claims.”
  4. Withholding Tax Rates: The DTAA specifies withholding tax rates for various types of income, including dividends (15%), interest (15%), and royalties (10% or 20%, as applicable).
  5. Taxation of Business Profits: The profits of an enterprise from one contracting state shall be taxable only in that state, unless the enterprise operates through a permanent establishment in the other state.

Inference

A significant amendment introduced by the protocol after the initial DTAA was the inclusion of a Limitation of Benefits clause in the India-Spain DTAA. The treaty also provides for the application of domestic General Anti-Avoidance Rule (GAAR) provisions to combat tax abuse, including treaty abuse, in the contracting states. However, these provisions are not identical to the Principal Purpose Test provisions of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), to which both India and Spain are signatories. It’s worth noting that the MLI provisions became effective in India on April 1, 2020. Nevertheless, the protocol does restrict treaty benefits to beneficial owners of income to some extent.

For comprehensive legal support related to the India-Spain Double Taxation Avoidance Agreement or any other international tax matters, please contact [Your Law Firm Name]. Our legal experts specialize in international tax law and are dedicated to providing tailored legal solutions to meet your specific needs. We are committed to delivering high-quality legal services and ensuring your satisfaction. If you have any questions or require assistance with legal matters, please do not hesitate to reach out. We are here to provide professional and dedicated service.

To know more about DTAA relations between India and Spain, please download our Guide.

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