INDIA- UNITED KINGDOM DOUBLE TAXATION AVOIDANCE AGREEMENT

 The government of India and the government of the United Kingdom of Great Britain and Northern Ireland (“UK”) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains signed a Double Taxation Avoidance Agreement (“DTAA”) on 25 January 1993. Since 1993, the DTAA has been revised twice by means of a protocol signed on 30 October, 2012 and through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) which was signed on 7 June, 2017. The treaty also allows the two nations to enter into Memorandum of Understandings to expedite exchange of information and assistance in collection of taxes.

Applicability

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

1. In India- the income tax, including any surcharge thereon.
2. In UK-

• the income-tax;
• the corporation tax;
• the capital gains tax; and
• the petroleum revenue tax.

Key Takeaways of the agreement

1. The DTAA’s application extends to all similar or substantially similar taxes which are imposed by either of the contracting state after the date of signature of the DTAA in addition to the taxes of the other contracting state.
2. The rate of withholding tax on dividend is 10%, if the beneficial owner is a UK company having ownership at least 25% of the shares of the Indian company paying the dividends or else 15% in all other cases.
3. Students residing in either of the contracting countries for the purpose of education have been exempted from tax.
4. An individual, who visits either of the contracting nations for a period not exceeding 2 years for the purpose of teaching or engaging in research at a university or college, have also been exempted from taxes. However these benefits are limited for up to 5 years only.
5. Any person liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, is to be considered a resident of that nation. However, there are other criteria also which have been led down for determining the residential status.
6. A partnership where the partner is a resident of India, shall be liable to a tax credit in respect of dividends paid to the partnership by a UK- resident company.
7. The remuneration, other than the pension which is paid by the government of a state to any individual who is a national of that state in respect of services provided in the discharge of governmental functions in the other state, shall be exempt from tax in that other contracting state.

Significance

There are numerous provisions in this DTAA due to which it has proved to be successful. The tax treaty has stimulated the flow of investment, technology and services between the two nations. The DTAA additionally consists of clauses which has facilitated the sharing of information with the consent of the supplying state and also assistance by the states in the collection of taxes. The amending protocol incorporates provisions for effective exchange of information between tax authorities of the two countries, bring the DTAA in consonance with the latest international standards including exchange of banking information and supplying of information irrespective of domestic interest.