INDIA- THAILAND DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Kingdom of Thailand for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income signed a Double Taxation Avoidance Agreement (“DTAA”) on 27 June, 1986, which was later replaced with a revised DTAA on 13 October, 2015. Accordingly, benefits of these provisions could be claimed from 01 January, 2016.

Applicability

The taxes which are covered under this DTAA are:

a. In India:

• the income-tax on including any surcharge thereon;

b. In Thailand:

• the income tax; and
• the petroleum income tax.

Key provisions

Some of the key provisions of the DTAA are as follows:

• A permanent establishment will be deemed constituted when an enterprise furnishes services within a state through employees or other personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period. A permanent establishment shall also be deemed constituted when an insurance enterprise

collects premiums in a notion or insures risks situated through a non-independent agent.

• Following are the currently applicable withholding tax rates:
• Dividends – 10%;
• Interest – 10%;
• Royalties – 10%.
• Under the double tax relief, credit system method for the elimination of double taxation. According to this, an individual taxed in its resident country will get its equivalent amount as credit which will then deducted from the amount payable as tax in the other country. DTAA in no case can prevent a country from applying the provisions of its domestic law or measures concerning tax avoidance or evasion.
• Capital gains on the disposal of shares in a property rich company are to be taxed in the state in which the property is located. Gains derived by a resident of a contracting state from the alienation of immovable property, situated in the other contracting state may be taxed in that other state.
• Royalties arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state.
• 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.
• The laws in force in either of the contracting states shall continue to govern the taxation of income in the respective contracting states except where provisions to the contrary have been issued by either of the states.
• The fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements are not to be affected by this DTAA.
• The agreement shall remain in force indefinitely until terminated by either of the contracting states.

Inference

Thai tax laws do not currently contain general anti-tax avoidance rules, however, India has been implementing these provision since April 2017, and thereby prohibitions on business arrangements whose main purpose is to obtain tax benefits under the treaty have become applicable on both India and Thailand. Currently, DTAA has substantially reduced the withholding tax rates on income, dividend and royalty. Exemptions under capital gains have been added and modifications in the permanent establishment criteria have also been inculcated. The DTAA has a comprehensive exchange of information clause, giving the contracting states far greater powers to gather information from the other state. Further, the DTAA includes the provision that if Thailand introduces a provision in its domestic laws regarding assistance in collection of taxes or agrees to enter into such a clause with any other country, then the competent authorities of India and Thailand will open negotiations to amend the DTAA so as to include an assistance in collection of taxes clause in the DTAA as well.