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India-Germany Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the government of India and the government of the Republic of the Philippines, signed on March 21, 1994, serves as a vital instrument to prevent double taxation and fiscal evasion concerning income taxes. Subsequently revised in 1996 and 2005, the DTAA was designed to offer tax stability to residents of both India and the Philippines. It also aimed to foster mutual economic cooperation and stimulate the flow of investment, technology, and services between the two contracting states.

Applicability of the DTAA

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

In India:

  1. The income tax, including any surcharge imposed under the Income-tax Act, 1961.
  2. The surtax imposed under the Companies (Profits) Surtax Act, 1964.

In the Philippines:

  1. The income taxes imposed by the Government of the Republic of the Philippines.

Key Takeaways

  1. Residence: As defined by the DTAA, a person liable to be taxed in a state based on criteria such as domicile, residence, place of management, or any other similar factors. However, this term does not include individuals taxed in a state solely on income from sources within that state.
  2. Income from Immovable Property: Income derived by a resident of one contracting state from immovable property located in the other contracting state may be subject to taxation in the latter.
  3. Business Profits: Profits of an enterprise from a contracting state are typically taxable in that state. However, if the enterprise conducts business through a permanent establishment in the other contracting state, then only profits attributable to that establishment are taxed in the latter.
  4. Shipping: Profits derived by an enterprise from a contracting state through the operation of ships in international traffic are taxable in that state.
  5. Dividends: Dividends paid by a company that is a resident of one contracting state to a resident of the other contracting state may be subject to taxation in the latter.
  6. Interest: Interest arising in one contracting state and paid to a resident of the other state may be taxed in the latter. Nevertheless, the contracting state where the interest arises retains the right to tax the interest.
  7. Royalties: Royalties originating in one contracting state and payable to a resident of the other state may be taxed in the latter. Similarly, the contracting state from which the royalties arise can also tax the income.
  8. Capital Gains: Gains derived by a resident of a state from the alienation of immovable property situated in the other state may be subject to taxation in the latter.
  9. Director’s Fees: The Director’s fees and similar payments received by a resident of one state serving as a member of the board of directors of a company resident in the other state may be taxable in the latter.

Inference

This DTAA, applicable to income tax, surcharges, corporate tax in India, and income tax in the Philippines, incorporates several favourable provisions. One notable feature is the elimination of double taxation, which adopts the credit system method to ensure that income is not taxed twice. Moreover, the DTAA includes mechanisms like the mutual agreement procedure, enabling the amicable resolution of disputes, and the exchange of information clause. The latter allows both contracting states to share pertinent information related to taxes, ensuring the proper taxation of residents’ income. These provisions align with the OECD Model Tax Convention, enhancing clarity and consistency in international tax matters.

For expert legal guidance on the India-Philippines Double Taxation Avoidance Agreement and other international tax matters, please contact Chandrawat & Partners. Our team of experienced legal professionals specializes in international tax agreements and is dedicated to providing tailored legal support to meet your unique requirements. We are committed to delivering high-quality legal services, ensuring your satisfaction and peace of mind. If you have inquiries or need assistance with your legal concerns, please reach out to us. We are here to address your legal needs with professionalism and diligence.

In the Philippines

  1. The income taxes imposed by the Government of the Republic of the Philippines.

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

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