India and France have signed an Amending Protocol to update the Double Taxation Avoidance Convention, marking a significant step toward aligning the bilateral tax treaty with international standards and strengthening economic cooperation between the two countries.
The revised Double Taxation Avoidance Convention aims to boost investment flows, enhance tax certainty, and modernize provisions governing cross-border taxation.
During the recent visit of the President of France to India, the Government of the Republic of India and the Government of the French Republic signed a Protocol amending the India-France Double Taxation Avoidance Convention, originally signed on 29 September 1992 (‘India-France DTAC’).
The Amending Protocol was signed by Ravi Agrawal, Chairperson, Central Board of Direct Taxes (CBDT), Government of India, and Thierry Mathou, Ambassador of France to India, on behalf of their respective Governments.
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Key Amendments to the Double Taxation Avoidance Convention
The Amending Protocol to the Double Taxation Avoidance Convention provides full taxing rights in respect of capital gains arising from the sale of shares of a company to the jurisdiction where such company is a resident.
This clarification is expected to reduce interpretational disputes and ensure greater tax certainty under the updated Double Taxation Avoidance Convention framework.
One of the major changes under the revised Double Taxation Avoidance Convention is the deletion of the so-called Most-Favoured-Nation (MFN) Clause from the Protocol to the DTAC, thereby bringing to rest all issues relating to it.
This move is expected to eliminate longstanding interpretational challenges associated with the MFN provision.
The Amending Protocol also modifies the taxation of income from dividends under the Double Taxation Avoidance Convention.
The earlier single tax rate of 10% has been replaced with a split rate structure: 5% for those holding at least ten percent of capital and 15% for all other cases. This change aligns the Double Taxation Avoidance Convention with contemporary treaty practices.
Further, the Protocol modifies the definition of ‘Fees for Technical Services’ by aligning it with the definition in the India-US Double Taxation Avoidance Agreement.
It also expands the scope of ‘Permanent Establishment’ by adding Service PE, thereby broadening the applicability of the Double Taxation Avoidance Convention to service-based cross-border operations.
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Strengthened Information Exchange and Tax Cooperation
The Amending Protocol updates the provisions on Exchange of Information under the Double Taxation Avoidance Convention and introduces a new Article on Assistance in Collection of Taxes, in line with international standards.
These changes are designed to enable and facilitate seamless exchange of information and strengthen mutual tax cooperation between India and France under the updated Double Taxation Avoidance Convention.
Additionally, the Amending Protocol incorporates within the Double Taxation Avoidance Convention the applicable provisions of the BEPS Multilateral Instrument (MLI), which had already become applicable following the signing and ratification of the MLI by both India and France.
This integration ensures that the DTAC reflects globally accepted anti-tax avoidance standards.
Implementation and Impact
The changes introduced through the Amending Protocol to the Double Taxation Avoidance Convention shall enter into effect subsequent to the completion of internal procedures under the laws of both countries and subject to the agreed terms.
By updating the DTAC to the latest international standards, the Amending Protocol balances the interests of both India and France.
The revised DTAC is expected to provide greater tax certainty to taxpayers and boost the flow of investment, technology, and personnel between the two nations, thereby strengthening their economic relationship.
