INDIA- FIJI DOUBLE TAXATION AVOIDANCE AGREEMENT

On 15 May, 2014, a Double Taxation Avoidance Agreement (“DTAA”) between India and Fiji entered into force. The tax treaty was signed on 30 January, 2014, and is the first of its kind between the two countries. The DTAA has been entered into with the main aim to provide tax stability to the residents of India and Fiji and facilitate mutual economic cooperation among the contracting states.

Taxes covered

The treaty covers the following types of taxes-

a. In India:

• income tax including any tax surcharges.

b. In Fiji:

• the income tax (including normal income tax, the non-resident dividend withholding tax, royalty withholding tax, interest withholding tax and the dividend tax); and
• land sales tax

Key takeaways

a. Services permanent establishment: The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or engaged personnel for the same or connected project for a period aggregating more than 182 days in any 12 month period.

b. Business profits: The DTAA provides that business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment in the source state. 

c. Withholding tax rates: Following shall be the applicable tax rates as per the DTAA:

• Dividends – 5%
• Interest – 10%
• Royalties and fees for technical services – 10%
• Dividends, interest, royalty income and fees for technical or professional services shall be taxed both in the country of residence and the country of source.
• Capital gains from the sale of shares will be taxable in the country of source.

d. Profits from operation of aircrafts: Profits derived by an enterprise from the operation of aircraft in international traffic, shall be taxable in the country of the place of effective management of the enterprise.

e. Double taxation relief: Both countries shall apply the credit method for the elimination of double taxation. Under the DTAA, income is taxed only in one country. If income is being taxed in both the countries, then the tax paid in one country is allowed as deduction from the tax payable in the other country as per the agreement.

f. Limitation on benefits: The treaty includes a limitation on benefits clause whereby the benefits of the treaty shall not be available to a resident of either state, if its affairs are arranged in such a way that the main purpose or one of the main purposes was to obtain the benefits of the treaty.

g. Anti-abuse provision: The DTAA also incorporates anti-abuse provisions to ensure that the benefits of this DTAA are availed of only by the residents of the two countries, thereby preventing any abuse of the tax treaty. The provisions also includes that any person, including legal entities, without bona fide business activities is not entitled to the benefits of the treaty.

Inferences

The DTAA has been entered into so as to curb the fiscal evasion with respect to taxes on income. The agreement further incorporates provisions for an effective exchange of information and assistance in collection of taxes between tax authorities of the two countries including exchange of banking information. Additionally, the DTAA also provides that the business profits shall be taxable in the source of state, if the activities of an enterprise constitute a permanent establishment in the source state. Anti-abuse provisions have also been inculcated to ensure that the benefits of the DTAA are availed of only by the residents of the two countries.