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India-France Double Taxation Avoidance Agreement (DTAA)
The Double Taxation Avoidance Agreement (DTAA) between the government of India and the French Republic was signed with the goal of preventing double taxation and fiscal evasion regarding income taxes. This agreement came into effect on August 1, 1994, and has undergone revisions in 2000 and 2009. Its primary objectives include providing tax stability to Indian and French residents, encouraging mutual economic cooperation, and facilitating the flow of investment, technology, and services between the two countries.
Applicability
The India-France DTAA is applicable to the following taxes in the contracting states:
In France:
- Income tax (“impôt sur le revenu”), including any withholding tax, pre-payment (“precompte”), or advance payment related to it.
- Corporation tax (“impôt sur les sociétés”), including any withholding tax, prepayment (“precompte”), and advance payment.
- Wealth tax (“impôt de solidarité sur la fortune”).
In India:
- Income tax, including any surcharge.
- Wealth tax.
The DTAA also covers any similar or identical tax that may be imposed in the contracting states after the signing of this DTAA.
Key Takeaways
- Residential Status: The DTAA defines a resident as any person who, under the laws of a Contracting State, is liable to tax therein due to domicile, residence, place of management, or any similar criterion. Determination of residence may depend on additional factors.
- Withholding Tax: The DTAA sets a 10% withholding tax rate on interests, royalties, and dividends.
- Interest Exemption: The DTAA provides an exemption for interests earned by governmental institutions.
- Independent Personal Services: Income derived by an individual or a partnership from professional services or similar activities is taxable only in the contracting state. However, there are circumstances where such income may also be taxed in the other contracting state.
- Director’s Fees: The Director’s fees and similar payments received by a resident of one contracting state in their capacity as a member of the board of directors of a company in the other state may be taxed in the other state.
- French Corporation Tax: The DTAA stipulates that dividends paid by an Indian-resident company to a French-resident company are exempt from French corporation tax to the extent that they would have been exempt under French law if both companies had been residents of France.
Significance of the DTAA
The India-France DTAA is marked by various beneficial provisions and clauses that eliminate double taxation through the credit system method. This means that individuals subject to taxation must declare their income in one of the countries, and if any income tax is imposed, a credit for that tax is provided in the other contracting state.
Additionally, the DTAA establishes a mutual agreement procedure for dispute resolution and facilitates the exchange of all tax-related information between the two countries. This exchange of information is crucial for the proper imposition of taxes in the respective contracting states.
For comprehensive legal advice or additional information regarding the India-France Double Taxation Avoidance Agreement or other legal matters, please do not hesitate to contact Chandrawat & Partners. Our legal experts specialize in international tax agreements and are committed to providing tailored legal assistance to meet your specific needs.
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To know more about DTAA relations between India and France, please download our Guide.
