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India-Finland Double Taxation Avoidance Agreement (DTAA)
The Double Taxation Avoidance Agreement (DTAA) between India and the Republic of Finland, signed on January 15, 2010, and effective from August 19, 2010, plays a pivotal role in preventing double taxation of income and combatting fiscal evasion concerning income taxes. Subsequently, a protocol was notified on May 20, 2010, making minor changes to the DTAA to align with the Multilateral Convention of the Organisation for Economic Co-operation and Development to Implement Tax Treaty-Related Measures to Combat Base Erosion and Profit Shifting (MLI).
Applicability
The India-Finland DTAA is a bilateral agreement designed to prevent double taxation of income earned in one country by residents of the other. It applies to individuals and companies that are residents of India or Finland and generates income in either or both countries. The agreement covers various types of income, including business profits, dividends, interest, royalties, and capital gains. It specifically addresses the following taxes:
In Finland:
- State Income-taxes
- Corporate Income-tax
- Communal tax
- Church tax
- Tax withheld at source from interest
- Tax withheld at source from non-residents’ income
In India:
- Income tax, including any surcharge
Key Provisions
Here are the key takeaways from the India-Finland DTAA:
- Favorable Withholding Tax Rates: The DTAA includes advantageous provisions, such as a 10% withholding tax rate on interests, dividends, royalties, and fees for technical services.
- Exemption for Government Institutions: Interest earned by government institutions is exempt from taxation.
- Continuity of the DTAA: The treaty will remain in effect unless either contracting state decides to terminate it. To terminate the DTAA, a contracting state must initiate the process through diplomatic channels and provide a notice of termination at least six months before the end of a calendar year following a minimum period of five years from the date the DTAA became effective.
- Income Classification: For the purpose of the DTAA, income from forestry or agriculture is classified as immovable property income under Finnish tax legislation.
- Taxation of Shipping and Aircraft Profits: Profits of an enterprise of a contracting state from the operation of ships or aircraft in international traffic will be taxable only in that state. The place of effective management of a shipping enterprise will be considered situated in the contracting state where the home harbour of the ship is located, or, in the absence of a home harbour, in the state where the operator of the ship is a resident.
- Taxation of Directors’ Fees: Directors’ fees and similar payments derived by a resident of one state in their capacity as a member of the board of directors of a company residing in the other state may be taxed in the other state.
Inferences
The India-Finland DTAA employs the credit system to eliminate double taxation, ensuring that income is only taxed in one country. The treaty establishes a mutual agreement process for peacefully resolving residence-related issues, facilitates information exchange about taxes between the nations, and provides assistance with tax collection.
Additionally, it incorporates a benefit limitation provision, which prevents individuals from engaging in activities primarily to benefit from the treaty and avoid taxes. The DTAA has fostered increased collaboration among tax authorities, reducing tax evasion activities in both countries. It has also provided clarity and certainty in tax matters, thereby promoting trade and investment between the two nations.
For personalized legal advice or additional information regarding the India-Finland Double Taxation Avoidance Agreement or other legal matters, please don’t hesitate to contact Chandrawat & Partners. Our legal team specializes in international tax agreements and is dedicated to providing top-tier legal assistance tailored to your needs.
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To know more about DTAA relations between India and Finland, please download our Guide.
