INDIA- CZECH REPUBLIC DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Czech Republic had signed a Double Taxation Avoidance Agreement (“DTAA”) for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income, which came into effect from 27 September, 1997. The treaty has been further amended due to the impact of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Sharing (MLI).

Applicability

The DTAA applies to the following taxes in the contracting states:

a. In India:

• the income-tax, including any surcharge thereon; and
• the wealth-tax.

b. In Czech Republic:

• tax on income of individuals;
• tax on income of legal persons; and
• tax on immovable property.

Key takeaways

Following are the major highlights of the DTAA signed between the contracting states:

1. Resident means any person who, under the laws of that state, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that state in respect only of income from sources in that state or capital situated therein.
2. Permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
3. Income derived by a resident of a contracting state from immovable property situated in the other contracting state, may also be taxed in that other state.
4. The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may also be taxed in the other state but only so much of them as are attributable to that permanent establishment.
5. Profits derived by an enterprise of a contracting state from the operation of ships or aircrafts in international traffic, shall be taxable only in that state.
6. A withholding tax rate of 10% has been agreed upon for dividends, interests, royalties and fees for technical services. An exemption to interests earned by government institutions has also been granted.
7. Gains derived by a resident of a contracting state from the alienation of immovable property situated in the other contracting states, may also be taxed in that other state.
8. Directors’ fees and other similar payments derived by a resident of a contracting state in his capacity as a member of the board of directors of a company which is a resident of the other contracting state, may also be taxed in that other state.
9. Pensions and other similar remuneration paid to a resident of a contracting state in consideration of past employment, shall be taxable only in that state.
10. The laws in force in either of the contracting states will continue to govern the taxation of income and of capital in the respective contracting states except where provisions to the contrary have been agreed upon in this DTAA.

Inference

The DTAA signed between the contracting states has various beneficial provisions like a lower withholding tax rate. The DTAA also consists of clauses like credit system method for elimination of double taxation, mutual agreement procedure to amicably resolve the disputes relating to residence amicably, sharing of information related to taxation with between the countries and assistance in the collection of taxes such taxes. With the signing off of the protocol, the DTAA has become in-line with the internationally accepted standards and practices.