India-Czech Republic Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the government of India and the government of the Czech Republic is aimed at preventing double taxation and fiscal evasion concerning taxes on income. This treaty came into effect on September 27, 1997, and has been subsequently amended to align with the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

Applicability

The India-Czech Republic DTAA encompasses the following taxes in the contracting states:

• In India: Income tax, including any surcharge, and wealth tax
• In the Czech Republic: Tax on income of individuals, tax on income of legal persons, and tax on immovable property

Key Takeaways

Here are the major highlights of the India-Czech Republic DTAA:

1. Residency Criteria: The DTAA defines a resident as any person who, under the laws of that state, is liable to tax therein based on factors such as domicile, residence, place of management, or similar criteria. This excludes individuals liable to tax in that state solely for income from sources in that state or capital situated therein.
2. Permanent Establishment: A permanent establishment is defined as a fixed place of business through which an enterprise conducts all or part of its business activities.
3. Taxation of Income from Immovable Property: Income derived by a resident of a contracting state from immovable property situated in the other contracting state may also be subject to taxation in that other state.
4. Taxation of Business Profits: The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise operates a permanent establishment in the other contracting state. If such an enterprise has a permanent establishment, the profits attributable to that establishment may be taxed in the other state.
5. Taxation of Shipping and Aircraft Profits: Profits derived by an enterprise of a contracting state from the operation of ships or aircraft in international traffic are taxable only in that state.
6. Withholding Taxes: The DTAA establishes a withholding tax rate of 10% for dividends, interests, royalties, and fees for technical services. Additionally, it grants an exemption to interests earned by government institutions.
7. Capital Gains Tax: Gains derived by a resident of a contracting state from the alienation of immovable property situated in the other contracting state may also be subject to taxation in that other state.
8. Taxation of Directors’ Fees and Pensions: Directors’ fees and other similar payments received by a resident of a contracting state in their capacity as a member of the board of directors of a company in the other contracting state may also be taxed in that other state. Pensions and similar remuneration paid to a resident of a contracting state in consideration of past employment are taxable only in that state.
9. Governing Laws: The DTAA states that the tax laws of either contracting state will continue to govern the taxation of income and capital in their respective states, except when the DTAA contains provisions to the contrary.

Inference

The India-Czech Republic DTAA provides several significant benefits, including a lower withholding tax rate, which promotes economic cooperation and prevents double taxation. It also includes provisions for a credit system to eliminate double taxation, a mutual agreement procedure to amicably resolve disputes related to residence, and the sharing of tax-related information between the two countries.

With the signing of the protocol, the DTAA aligns with internationally accepted standards and practices, ensuring better tax governance and strengthening economic ties between the contracting states.

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