INDIA – PHILLIPINNES DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Republic of Philippines 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 21 March, 1994. The DTAA was thereafter revised in 1996 and 2005 with the aim to provide tax stability to the residents of India and Philippines 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 India:

• the income-tax including any surcharge thereon imposed under the Income-tax Act, 1961;
• the surtax imposed under the Companies (Profits) Surtax Act, 1964.

b. In the Philippines:

• the income-taxes imposed by the Government of the Republic of the Philippines.

Key Takeaways

1. Residence: As per the DTAA, any person who under the laws of that state is liable to be taxed therein by reason of his domicile, residence, place of management or by any other criterion of a similar nature. But this term does not include any person who is liable to be taxed in that state in respect of only income from sources in that state.
2. Income from immovable property: Income derived by a resident of a contracting state from immovable property situated in the other contracting state, may be taxed in that other state.
3. Business profit: 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. If the enterprise carries on business as aforesaid, then the profits of the enterprise may be taxed in the other state but only so much of them as is attributable to that permanent establishment.
4. Shipping: Profits derived by an enterprise of a contracting state from the operation of ships in international traffic, shall be taxable in that state.
5. Dividends: Dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state, may be taxed in that other state.
6. Interest: Interest arising in a contracting state and paid to a resident of the other state, may be taxed in that other state. However, interest may also be taxed in the contracting state regarding the tax so charged.
7. Royalties: Royalties arising in one state and payable to a resident of the other state, may be taxed in that other state. However, royalty may also be taxed in the contracting state regarding the tax so charged.
8. Capital gains: Gains derived by the resident of a state from the alienation of immovable property situated in the other state, may be taxed in that other state.
9. Director’s fees: Directors’ fees and similar payments derived by the resident of one 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 signed between the countries applies to income tax, surcharges and corporate tax in India and the income tax in the Philippines. The DTAA incorporates various beneficial clauses and provisions like the elimination of double taxation which directs that the credit system method shall be followed. Additionally, the DTAA consists of provisions like the mutual agreement procedure to amicably resolve the disputes that may arise and the exchange of information clause as per which all the relevant information related to taxes for the purpose of appropriate taxation in the resident state shall be shared with the other contracting state. Such provisions are a result of the OECD Model Tax Convention.