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INDIA- ITALY DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Republic of Italy signed a Double Taxation Avoidance Agreement (“DTAA”) on 23 September, 1995 for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income, which came into effect from 25 April, 1996. The DTAA has been revised once since then, with the aim to provide tax stability to the residents of India and Italy and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between the two countries.

Applicability 

The DTAA covers the following taxes:

  • In India, the DTAA applies to the following-
  • the Income-tax including any surcharge thereon; and
  • the surtax;
    • In Italy, the DTAA applies to the following-
  • the personal income-tax;
  • the corporate income-tax; and
  • the local income tax.

Key takeaways

  • Withholding tax: The DTAA provides the withholding tax rate for dividend @15% at least of the gross amount of the dividends, if the beneficial owner is a company which owns at least 10% of the shares of the company paying the dividends and 25% of the gross amount of the dividends in all other cases; interests @15%, with the an exemption to interests earned by government institution; royalty @20%; and fees for technical services @20%.
  • Business profits: The DTAA states that 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. In addition to this, the tax liability shall be changed or increased if the business is carried on in other states also.
  • Capital gains: The DTAA provides the capital gains derived by a resident of the contracting state from the alienation of a property shall be taxed in that state itself.
  • Independent personal services: DTAA prescribes that the income derived by the resident of a contracting state in respect of professional services or other independent activities of a similar character, shall be taxed in that state. Such income may also be taxed in the other contracting state if such services are performed in that other state.
  • Director’s fees: The DTAA provides that the directors’ fees and similar payments derived by the 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, shall be taxed in that other contracting state.
  • Pensions: The DTAA provides that the pensions and other similar remuneration paid to a resident of a contracting state in consideration of past employment may be taxed in both the contracting states.

Inference  

The DTAA consist of various clauses, covering income tax, surtax and surcharges in India and personal income tax, local income tax and corporate tax in Italy. Adding to the wide coverage, the DTAA consists of clauses like the mutual agreement procedure clause as per which all dispute shall be resolved amicably by the states. Though the DTAA has not been modified by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion (“MLI”), it consists of clauses like the mutual agreement procedure, sharing of tax information and credit method system which has brought the DTAA in-line with the international practices and standards, while inculcating the major provisions of the MLI as well.

To know more about DTAA relations between India and Italy, please download our Guide.

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