INDIA- VIETNAM DOUBLE TAXATION AVOIDANCE AGREEMENT

The government of India and the government of the Socialist Republic of Vietnam had signed a Double Taxation Avoidance Agreement on 07 September, 1994 with the view to prevent fiscal evasion with respect to taxes on income; which come into force on the 02 February, 1995. Further, in order to meet the internationally accepted standards, the contracting states signed off an amending protocol which was approved in 2015 and thereafter signed on 30 August, 2017, from when it became applicable. Under the amending protocol, Article 27 was replaced with the article on ‘Assistance in the Collection of taxes’, and a sub-article 27A was also inserted.

Applicability

The taxes which are covered under this DTAA are:

a. In India:

• the income-tax on including any surcharge thereon;

b. In Vietnam:

• the personal income-tax;
• the profit tax; and
• the profit remittance tax.

Key provisions

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

• The term “resident of a Contracting State” means any person who, under the laws of that state, is liable to tax.
• Income derived by a resident of a contracting state from immovable property (including income from agriculture or forestry) situated in the other contracting state may be taxed in that other state.
• 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.
• Dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state is taxed in that other state.
• Technical fees arising in a contracting state which are derived by a resident of the other contracting state may be taxed in that other state.
• Capital 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.
• Income derived by a resident of a contracting state in respect of professional services or other independent activities of a similar character shall be taxable only in that state.
• Directors’ fees and similar payments derived by a resident of a contracting state in his capacity as a member of the board of directors of a company which is a resident of the other contracting state may be taxed in that other state.
• Income derived by a resident of a contracting state through his personal activities exercised in the other contracting state may be taxed in that other state.
• Under the clause of double taxation avoidance, the laws in force in either of the contracting states will continue to govern the taxation of income in the respective states except the contrary provisions of the DTAA.

 Inference

In order to bring the DTAA in consonance with the international practices and to implement the provisions as agreed upon in the ‘The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting’ (“MLI”), various amendments were made. The amending protocol entered into between India and Vietnam was among 12 other agreements that were signed that day to strengthen the strategic partnership between the countries, while celebrating 2017 as the year of friendship. The exchange of interest clause added through the protocol, has helped both the states to comply with international standards with respect to transparency and has reduced instances of tax evasion as it mandates sharing of information on a routine or on a request basis. Any information shared in pursuance of this clause, is to be considered as confidential. Apart from this, Article 27A which deals with assistance in the collection of taxes was also inserted as per which the contracting states can collect the ‘revenue claim’ on the other country’s behalf in respect of any tax which the assesses is liable to pay.