INDIA – FRANCE DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the French 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 1 August, 1994. The DTAA was thereafter revised in 2000 and 2009 with the main aim to provide tax stability to the residents of India and France and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between the contracting states.

Applicability

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

a. In France:

• the income-tax (‘impot sur le revenu’) including any withholding tax, pre-payment (precompte) or advance payment with respect thereto;
• the corporation tax (l ‘impot sur les scietes’) including any withholding tax, prepayment (precompte) and advance payment with respect thereto; and
• the wealth-tax (I ‘impot le solioarite’sur la fortune).

b. In India:

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

The DTAA further specifies that any similar or identical tax that may be imposed in the contracting states after signing of this DTAA, shall also be covered under the DTAA.

Key takeaways

1. Residential status: According to the DTAA a resident is referred to any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. Determination of the residence may also depend on other determinations.
2. Withholding tax: The DTAA provided that the withholding tax rate shall be 10% on interests, royalties and dividends.
3. Interest: The DTAA provides and grants for the exemption on interests earned by the governmental institutions.
4. Independent personal services: Income derived by an individual or a partnership of individuals by the performance of professional services or any other independent activities of a similar character, shall be taxable only in that contracting state. However, there are certain circumstances when such income may also be taxed in the other contracting state.
5. Director’s fees: The DTAA provides that the director’s fee and 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 state, may be taxed in that other state.
6. French Corporation tax: The DTAA provides that the dividends paid by a Indian- resident company to a French- resident company, shall be exempt from the French corporation tax to the extent that the dividends would have been exempt under French law if both companies had been residents of France.

Significance of the DTAA

DTAA incorporates various beneficial provisions and clauses which eliminates double taxation with the usage of the credit system method. In pursuance of the same, people subject to taxation are required to declare their property in either of the countries as they are to be taxed where they are located and if any income tax arises on it, a credit in this respect shall be granted to them in the other contracting state. Further, the DTAA also provides for a mutual agreement procedure to be resorted to in case of a dispute and facilitates the exchange all tax related foreseeably relevant information with each other for proper imposition of taxes in the respective contracting states.