INDIA- FINLAND DOUBLE TAXATION AVOIDANCE AGREEMENT

A Double Taxation Avoidance Agreement (“DTAA”) for the avoidance of double taxation and prevention of fiscal evasion with regard to income taxes was signed between the governments of India and the Republic of Finland on 15 January, 2010, which became effective from 19 August, 2010. A notification dated 20 May, 2010 was notified the protocol and made a few minor changes to the DTAA in order to implement the terms agreed upon in 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 signed between India and Finland to prevent double taxation of income earned in one country by residents of the other country. It applies to individuals and companies which are residents of India or Finland and have income earned in either one or both of the countries. The agreement covers various types of incomes, including business profits, dividends, interest, royalties, and capital gains.

It specifically covers the following taxes:

a. In Finland:

• the State Income-taxes (valtion tuloverot; de statliga inkomstskatterna);
• the corporate Income-tax (yhteisöjen tulovero; inkomstskatten för samfund);
• the communal tax (kunnallisvero; kommunalskatten);
• the church tax (kirkollisvero; kyrkoskatten);
• the tax withheld at source from interest (korkotulon lähdevero; källskatten pä ränteinkomst); and
• the tax withheld at source from non-residents’ income (rajoitetusti verovelvollisen lähdevero; källskatten för begränsat skattskyldig).

b. In India:

• the income-tax, including any surcharge thereon.

Key provisions 

Following are the key takeaways from the India- Finland DTAA:

1. The DTAA, which was agreed upon by the contracting states, has a number of advantageous provisions, such as a 10% withholding tax rate on interests, dividends, royalties, and fees for technical services.
2. Interest earned by government institutions is free from taxation.
3. Until a contracting state terminates the DTAA, this treaty shall remain in effect. Each contracting state may terminate the DTAA through diplomatic channels, by providing a notice of termination at least six months before the end of any calendar year that comes after a minimum period of five years from the date the DTAA goes into effect,
4. Income from forestry or agricultural is classified as immovable property income under Finnish tax legislations. As a result, for the purpose of this DTAA, Finland’s revenue from agriculture or forestry will be recognised as income from the immovable property.
5. Profits of an enterprise of a contracting state from the operation of ships or aircraft in international traffic, shall be taxable only in that state. But if the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the contracting state in which the home harbour of the ship is situated, or, if there is no such home harbour, in the state of which the operator of the ship is a resident.
6. Directors’ fees and other similar payments derived by a resident of a state in his capacity as a member of the board of directors of a company which is a resident of the other state, may be taxed in that other state.

Inference

The DTAA provides that the credit system shall be resorted to for the elimination of double taxation which is a mutual agreement process for resolving residence-related problems peacefully, information exchange about taxes between the nations, and aid with tax collection. The DTAA also consists of a benefit limitation provision, according to which anybody engaging in any activity only to benefit from this treaty and avoid taxes will not be eligible to avail the advantages granted under the DTAA. The DTAA has fostered and increased collaboration among the authorities and assisted in the reduction of tax evasive activities in both the countries. It has also helped to promote trade and investment between the two countries by providing clarity and certainty in tax matters.