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India-Italy Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the government of the Republic of India and the government of the Republic of Italy was signed on 23 September 1995, and it came into effect on 25 April 1996. The DTAA aims to prevent double taxation and fiscal evasion concerning taxes on income, providing tax stability to residents of India and Italy, and encouraging mutual economic cooperation and investment flow between the two nations.

Applicability

The India-Italy DTAA applies to various taxes in both countries:

  • In India, it covers the income tax, including surcharges, and surtax.
  • In Italy, it includes personal income tax, corporate income tax, and local income tax.

Key Takeaways

Here are the key highlights of the India-Italy DTAA:

  1. Withholding Tax: The DTAA specifies withholding tax rates for various types of income. Dividends are taxed at a rate of 15% of the gross amount if the beneficial owner is a company holding at least 10% of the shares in the company paying the dividends; otherwise, the rate is 25%. Interests and royalties are also taxed at 15%, with an exemption for interests earned by government institutions. Fees for technical services are subject to a 20% withholding tax.
  2. Business Profits: The DTAA states that the profits of an enterprise of a contracting state are taxable only in that state unless the enterprise operates through a permanent establishment in the other contracting state. If it does, the tax liability may change or increase.
  3. Capital Gains: Capital gains derived by a resident of a contracting state from the sale of property are taxed in that state.
  4. Independent Personal Services: Income earned by residents of a contracting state in professional services or similar independent activities is taxed in that state. However, if such services are performed in the other contracting state, they may also be taxed there.
  5. Director’s Fees: Fees and payments to residents of a contracting state for their role as board members of a company in the other contracting state are taxed in that other state.
  6. Pensions: Pensions and similar remuneration for past employment paid to residents of a contracting state may be subject to taxation in both contracting states.

Inferences

The India-Italy DTAA covers a wide range of taxes and is equipped with various provisions. It includes clauses such as the mutual agreement procedure, which aims to resolve disputes amicably between the contracting states. Although this DTAA has not been modified by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion (MLI), it aligns with international standards. It incorporates provisions like the mutual agreement procedure, sharing of tax information, and a credit method system, bringing it in line with global practices and standards. It also incorporates major MLI provisions, ensuring tax matters are dealt with efficiently and transparently.

For comprehensive legal advice or further information on the India-Italy Double Taxation Avoidance Agreement or any other legal matters, please do not hesitate to contact Chandrawat & Partners. Our legal experts specialize in international tax agreements and are dedicated to providing tailored legal assistance to meet your specific needs.

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

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