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India-Thailand Double Taxation Avoidance Agreement (DTAA)

The Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the Kingdom of Thailand, aimed at preventing double taxation and fiscal evasion related to taxes on income, was initially signed on June 27, 1986. However, a revised DTAA was later signed on October 13, 2015, and its benefits could be claimed from January 1, 2016.

Applicability of the DTAA

The DTAA covers the following taxes in the contracting states:

In India:

  • Income tax, including any surcharge thereon.

In Thailand:

  • Income tax.
  • Petroleum income tax.

Key Provisions

  1. Permanent Establishment (PE): A permanent establishment is deemed constituted when an enterprise furnishes services within a state through employees or other personnel for the same or connected project for a period aggregating more than 183 days within any 12-month period. Additionally, a permanent establishment is deemed constituted when an insurance enterprise collects premiums or insures risks situated through a non-independent agent.
  2. Withholding Tax Rates:
    • Dividends: 10%
    • Interest: 10%
    • Royalties: 10%
  3. Double Tax Relief: The DTAA follows the credit system method for the elimination of double taxation. An individual taxed in its resident country receives an equivalent amount as credit, which is then deducted from the amount payable as tax in the other country.
  4. Taxation of Capital Gains: Capital gains on the disposal of shares in a property-rich company are taxed in the state where the property is located. Gains derived from the alienation of immovable property are taxed in the state where the property is situated.
  5. Taxation of Royalties: Royalties arising in one contracting state and paid to a resident of the other contracting state may be taxed in the latter.
  6. Taxation of Business Profits: Profits of an enterprise are taxable in the state where the enterprise carries on business, unless the enterprise operates through a permanent establishment in the other state.
  7. Exchange of Information: The DTAA includes a comprehensive exchange of information clause, empowering contracting states to gather information from each other.
  8. Duration: The agreement remains in force indefinitely until terminated by either of the contracting states.

Inference

The DTAA has substantially reduced withholding tax rates on income, dividends, and royalties. It introduces exemptions under capital gains and modifies the permanent establishment criteria. While Thai tax laws currently lack general anti-tax avoidance rules, India has implemented such provisions since April 2017. The DTAA includes provisions for negotiations in case Thailand introduces a provision in its domestic laws regarding assistance in the collection of taxes. Overall, the agreement aims to prevent double taxation, facilitate mutual economic cooperation, and stimulate the flow of investment between India and Thailand.

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

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