icai - live webcast by the committee on international taxation of icai on friday 13th september,...

How to read A Tax Treaty

By CA Sushil Lakhani

ICAI - Live Webcast By the Committee on International Taxation of ICAI

on Friday 13th September, 2013 at 6.00 pm to 7.30 pm

Agenda:

Following DTAAs of India:

United Kingdom(UK)

Netherland

Singapore

Mauritius

UAE2

How To Read A Tax Treaty - By CA Sushil Lakhani13/09/2013

Note:

For convenience of understanding of the Articles, India has been treated as the source country in the following slides.

The treaties would equally apply if the other country would have been the source country.

313/09/2013

How To Read A Tax Treaty - By CA Sushil Lakhani

DTAA with United Kingdom (UK)

4

Relevant Dates:

Signed on – January 25th, 1993 Date of notification in the official

gazette: February 11, 1994 Date of coming into force April 1, 1994

i.e. A.Y. 1995-96 Protocol signed on January 25th, 1993

(“Old Protocol”) Protocol signed on October 30th, 2012

coming into force from April 1, 2013 i.e. A.Y. 2014-15 (“New Protocol”)

5

Treaty with United kingdom

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Article 1: Scope of the Treaty

The Convention shall apply to persons who are residents of India and/or United Kingdom (UK)

India is defined in Article 3(1)(b) to mean – “the Republic of India”

UK is defined in Article 3(1)(a) to mean – “Great Britain and Northern Ireland” 6


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Article 1 (contd.): Territorial Extension of India/ UK

This Convention extends to the territory of India/UK, including its territorial sea, and to those areas of the exclusive economic zones or the continental shelf adjacent to the outer limit of the territorial sea of India which it has, in accordance with international law, sovereign rights for the purpose of exploration and exploitation of the natural resources of such areas, and references in this Convention to India shall be construed accordingly.

The territory of India has not been extended to include the airspace above it?? (contrast with DTAA s with other countries eg. Singapore, Netherlands etc)

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Article 2: Taxes Covered

In India, income tax include surcharge thereon In UK, corporation and petroleum tax are also

covered under the Convention. Compare the same with India-Norway, India-Hungary

or India-Germany tax treaties. In Norway: Nine types of taxes are covered; E.g.

Municipal tax on income, National contribution to Tax Equalisation Fund, Seamen’s tax, etc.

In Hungary: Seven types of taxes are covered; E.g. income-tax on household and auxiliary farms, Town and community contributions, levy on dividends and profit distributions of commercial companies, etc.

In Germany: Trade Tax is covered

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Article 3: General Definitions

“Tax” excludes amount paid in relation to any default, omission or penalty in relation to the taxes.

“Fiscal year” defined for India to mean as “previous year” as per Income Tax Act & for UK to mean as a year beginning with April 6 in one year and ending with April 5 in the following year.

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Article 3: General Definitions Prior to amendment the definition read as under:

The term “person” includes an individual, a company and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States, but, subject to paragraph 2 of this Article, does not include a partnership;

Para 2 of the Article states that a “partnership which is treated as a taxable unit under the Income-tax Act, 1961 of India shall be treated as a person for the purposes of this Convention.” (Refer Linklaters LLP vs. ITP (40 SOT 51) (TMum))

After the amendment vide the New Protocol, the definition of person has been amended to read as under:

The term "person" includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States;

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Article 4: Fiscal domicile(resident)

Prior to the amendment the Para 1 of the Article read as under:

“Resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

The Para 1 of this Article has been replaced w.e.f. April 1, 2013.

“Resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, provided, however, that:

a) This term does not include any person who is liable to tax in that State in respect only of income from sources in that State; and

b) In the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries.

(Note: This definition has been brought in line with US Treaty. Difference between “liable to tax” Vs. “subject to tax”)

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Article 4: Fiscal Domicile(contd’) Tie-Breaker Tests:

Where an Individual is a resident of both India and UK, then following would be considered sequentially for the determination of the country of residence:

Permanent home available to the individual Centre of vital interests Country of habitual abode Country of which he is a national Mutual Agreement between the countries.

Person other than an Individual – deemed to be a resident of the Country where the effective place of management is situated.

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Article 5: Permanent Establishment

Means a fixed place of business of an enterprise through which it is wholly or partly carried out.

Permanent establishment incudes: a) to e) and h)—standard as per OECD Model f) Premises used as a sales outlet or for receiving or

soliciting orders g) a warehouse in relation to a person providing storage

facilities for others; i) an installation or structure used for the exploration or

exploitation of natural resources; j) Where charges payable for the project or

supervisory activity exceed 10% of the sales price of the machinery or equipment and such activities continue for a period not exceeding 6 months – (to be read with the Protocol(old))

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Protocol in relation to sub-paragraph (j) of Article 5:

For determining whether a building site or construction, installation or assembly project or supervisory activity in connection therewith has continued for a period of more than 6 months, a contracting state shall:

i. Take no account of time spent by employees on other sites having no connection with the current site.

ii. Apply more than 6 months test to each site which has no connection with any other site, and

iii. regard a building site as a single site, even if several contracts have been entered into for work being done, provided it forms a coherent whole, both geographically & commercially

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Service PE of an Indian Enterprise in UK k) the furnishing of services including managerial

services, other than those taxable under Article 13 (Royalties and fees for technical services), within UK by an enterprise through employees or other personnel, but only if:

i. activities of that nature continue within UK for a period or periods aggregating more than 90 days within any twelve-month period; or

ii. services are performed within UK for an enterprise within the meaning of Article 10(1) (Associated Enterprise) and continue for a period or periods aggregating more than 30 days within any twelve-month period. ( contrast with US Treaty where one day presence triggers Service PE in case of related enterprises)

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3. Exclusions from PE—auxiliary and preparatory activities—in line with UN Model :

storage of stock of goods for delivery triggers PE;

4. Dependent Agency PE of Indian Enterprise in UK( in line with Indian Income Tax Act,1961)

A person acting in UK for or on behalf of an enterprise of India other than an agent of an independent status to whom paragraph (5) applies, shall be deemed to be a PE of the Indian enterprise in UK if:

(contd…)16


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a) he has, and habitually exercises in UK, an authority to negotiate and enter into contracts for or on behalf of the Indian enterprise, unless his activities are limited to purchase of goods or merchandise for the Indian enterprise; or

b) he habitually maintains in UK a stock of goods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the Indian enterprise; or

c) he habitually secures orders in UK, wholly or almost wholly for the Indian enterprise or for other enterprise and the enterprises controlling, controlled by, or subject to the same common control, as the Indian enterprise.

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Article 6: Income from Immovable Property

Income from Immovable property will be taxed in the state where such property is situated

Immovable property shall include: Property accessory in immovable property Livestock and equipment used in

agriculture Usufruct of immovable property

Ships and Aircrafts have been excluded from the meaning of immovable property as there are separate Articles for these.

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Article 7: Business ProfitsProfits of the UK PE of an Indian Resident The profits of an Indian enterprise shall

be taxable only in India unless the enterprise carries on business in UK through a PE situated in UK. If the enterprise carries on the business as aforesaid, the profits of the enterprise may be taxed in UK, but only so much of them as is directly or indirectly attributable to the PE.

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Article 7: Business ProfitsSpecial features of Article 7 Taxation of PE income both by India & UK &

credit method for elimination of Double Taxation

PE to be treated & taxed as separate & distinct entity

No Force of Attraction – However, Clause (b) of old Protocol clarifies that tax authorities not precluded from determining whether PE took active part in Orders placed directly with HO

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Article 8 : Air transport Profits derived from the operation of

aircraft in international traffic by an Indian enterprise shall not be taxed in UK.

Profits to include interest derived from the investment or deposit of receipts arising directly from the operation of aircraft in international traffic but shall not include interest derived from reinvestment of such interest

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Article 9 : Shipping

Income of an Indian enterprise from the operation of ships in international traffic shall be taxable only in UK.

This Articles does not apply to income from journeys between places which are situated in India or UK

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Article 10: Associated Enterprises

Article 10(1) permits transfer pricing adjustment Where:

a) an enterprise of India participates directly or indirectly in the management, capital or control (MCC) of an enterprise of UK, or

b) the same persons participate directly or indirectly in the MCC of an Indian and an UK enterprise, and conditions are made between the two enterprises in their commercial or financial relations which differs from those which would be made between independent enterprises, then any profits which would have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

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Article 10: Associated Enterprises

Article 10(2): Mandates corresponding adjustment in the other Country

Similar clause for corresponding adjustment in the other country is missing in the treaties of India-Mauritius and India-Singapore.

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Article 11: Dividends

Old ProvisionIn respect of dividend paid by a UK Company to an Indian resident:

Taxable in India UK tax on dividends to Individual resident of India limited to 15% of gross

dividends provided that the Individual is entitled to tax credit in India. UK tax on dividends to other Indian residents (other than Individuals) to be

exempt in UK.

In respect of dividends paid by an Indian Company to a UK resident Taxable in UK India tax not to exceed 15% of gross amount DDT (in India) not affected

New Provision wef AY 2014-15 Standard Article 10% of gross dividends in the source country (15% in case of distribution of

income/gains from immovable property) Para 6 – Anti – Avoidance provision – clarified that benefit not available if the

“main purpose” of creation or assignment of shares was to take advantage of this Article.

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Article 12: Interest

1. Interest arising in UK and paid to resident of India may be taxed in India.

2. However, such interest may also be taxed in UK where it arises and according to the laws of UK provided that where the resident of India is the beneficial owner of the interest, the tax so charged shall not exceed 15% of the gross amount of interest.

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3.Notwithstanding the provisions of para 2:a) Where the interest is paid to a bank carrying

on a bonafide banking business which is a resident of India and is the beneficial owner of the interest, the tax charged in UK in which the interest arises shall not exceed 10% of the gross amount of interest.

b) Where the interest is paid to the Government of India or a political sub-division or a local authority of India or the RBI, it shall not be subject to tax in UK.

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Article 13 : Royalties / FTS

Example UK resident as recipient of income:

Royalties & FTS arising in India and paid to resident of UK may be taxed in UK.

However, such Royalties & FTS may also be taxed in India where they arise and according to the laws of India but if the beneficial owner of Royalties / FTS is resident of UK, the tax so charged shall not exceed……

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Article 13 : Royalties / FTS

Tax Rates for Royalties & FTS are as follows: For Equipment Royalties & Services ancillary &

subsidiary to enjoyment of such equipments – 10% of gross amounts

For Royalties & Fees for Technical Services other than those covered above:

During first five years for which this Convention has effect:

15% where the payer is Government or its political sub division

20% where the payer is other than what stated above During subsequent years – 15% of gross amounts

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Article 13 : Royalties / FTS Definition of “fees for technical service” inter-alia

includes payments of any kind in consideration for the rendering of any technical or consultancy services which:

C) “make available” technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design.

Meaning of “make available” as explained in other treaties would have to applied to the UK Treaty.

CIT vs. De Beers India Minerals (P.) Ltd. (346 ITR 467) (Kar.)

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Article 14: Capital Gains

Each Contracting state may tax capital gains in accordance with the provisions of its domestic laws.

Instead of providing for allocation of taxing rights, the Article makes a reference to Domestic Laws of respective Contracting States.

Same is the case with India-US tax treaty Compare with other Tax treaties or even

Model Conventions – Vast Difference31


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Article 15: Independent Personal Service

Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of India in respect of professional or other independent activities of a similar character may be taxed in India. Such income may also be taxed in UK if such services are performed in UK and if :a) he is present in UK for a period or periods aggregating to 90 days

in the relevant fiscal year; orb) he, or the partnership, has a fixed base regularly available to him,

or it, in UK for the purpose of performing his activitiesbut in each case only so much of the income as is attributable to those services

It should be noted that the provisions of this Article apply only to income derived by an “individual”. Whereas in the treaty between India and Netherlands, similar Article applies to a “resident”.

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How to Calculate No. of Days for partnerships:For the purposes of paragraph 1 of this Article an individual who is a member of a partnership shall be regarded as being present in the UK during days on which, although he is not present, another individual member of the partnership is so present and performs professional services or other independent activities of a similar character in UK.

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“Professional services” include independent:

- Scientific, literary, artistic, educational or teaching activities

as well as independent activities of:

- Physicians, surgeons, lawyers, engineers, architects, dentists and accountants

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Article 16 : Dependent Personal Services

Indian resident deriving salary from UK: Subject to ………. Salaries, wages

and other similar remuneration derived by an Indian resident in respect of an employment shall be taxable only in India unless the employment is exercised in UK. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in UK.

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Article 16 : Dependent Personal Services

Remuneration derived by Indian resident in respect of an employment exercised in UK shall not be taxed in UK if : he is present in UK for a period not

exceeding in aggregate 183 days during the relevant fiscal year;

the remuneration is paid by, or on behalf of, an employer who is not resident of UK, and

the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in UK

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Article 17 - Directors’ fees

Directors’ fees and similar payments derived by a resident of India in his capacity as a member of the board of directors of a company which is a resident of UK may be taxed in UK.

Taxability at place where the company is resident

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Article 18: Artistes and Athletes Income derived by entertainers (such as

stage, motion picture, radio or television artistes and musicians) or athletes, from their personal activities, whether accruing to themselves or to any other person, may be taxed in the source country.

Provisions of the Article would not apply if the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public funds of the other Contracting State

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Article 19: Government Remuneration and Pensions

Standard as per UN and OECD Model

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Article 20 : Pensions & Annuities

Any pension, other than a pension referred to in Art. 19(2) of this Convention, or annuity paid to a resident of India shall be taxable only in India.

“CASE OF DOUBLE NON-TAXATION”

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Article 21 : Students & trainees

Indian residents, who are temporarily present in UK for purpose of studying, or for securing necessary training or studying or doing research as a recipient of a grant, allowance, or award from governmental, religious, …. organisation shall not be subject to tax in UK in respect of following (for a maximum of 5 years): Gifts from abroad for the purposes of his

maintenance, education, study, research or training; the grant, allowance or award; and income from personal services to the extent of 750

sterling pounds for each relevant fiscal year

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Article 22: Teachers

An individual who visits UK for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognised educational institution in UK, and who was immediately before that visit a resident of India, shall be exempted from tax by UK.

CAN BE A CASE OF “DOUBLE NON TAXATION”

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Article 23 : Other Income Subject to the provisions of para 2 of this

Article, items of income beneficially owned by an Indian resident, wherever arising, other than income paid out of trusts or the estates of deceased persons in the course of administration, which are not dealt with in the foregoing Articles of this Convention, shall be taxable only in India.

Notwithstanding the provisions of para 1 & 2, income of an Indian resident not dealt with in the other Articles, and arising in UK may be taxed in UK

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Article 24: Elimination of Double Taxation

Credit for the tax on the income doubly taxed: Allowed

Underlying tax credit allowed only in UK and not in India.(DTAAs of Mauritius and Singapore with India provide for underlying tax credit in India also)

Tax sparing: allowed in source??? country

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Article 25: Partnership

This Article has been deleted w.e.f. April 1, 2013

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Article 26: Non-discrimination

“Nationals” and “enterprises” of other Country shall not be subjected to taxation in the source country, which is more burdensome than that of nationals and enterprises of the source country.

Discrimination of individuals on the basis of residence is permitted.

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Article 27: Mutual Agreement Procedure

Standard Clause as per UN Model

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Article 28: Exchange of Information

This Article has been amended by the New Protocol wef 1st April,2013 and made more stringent in the following respects:

The two countries can exchange information which is “foreseably relevant “ as against info which is “necessary” as per the old Article

If information is requested by Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The standard imitations in Para 3 shall not be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.

The standard limitations in Para 3 shall not be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

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Article 28A: Tax Examination Abroad

Inserted by New Protocol w.e.f. 1st April,2013

For instance in case Indian tax authorities request for examination of a UK Resident The representatives of India may

request the competent authority of UK to interview a UK Citizen and examine records with prior written consent of the persons concerned.

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Article 28B: Assistance in Collection of Taxes

Inserted by New Protocol w.e.f. 1st April,2013 Contracting States shall lend assistance to each other in the

collection of revenue claims in respect of taxes covered by the Convention

“Revenue claim" means an amount owed in respect of taxes covered by this Convention as well as interest, administrative penalties and costs of collection or conservancy related to such amount.

Claim of a contracting state owed by a resident of the other contracting state may, at request of such contracting state, be collected by the other contracting state as collection of its own taxes as if the revenue claim were a revenue claim of that other state.

When a Contracting State may, under its law, take interim measures of conservancy by freezing of assets before a revenue claim is raised against a person, the competent authority of the other Contracting State, if requested by the competent authority of the first mentioned State, shall take measures for freezing the assets of that person in that Contracting State in accordance with the provisions of its law.

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Article 28C: Limitation of Benefits

Benefits of this treaty shall not be available if the main purpose or one of the main purposes of the creation or existence of such a resident or of the transaction undertaken by him, was to obtain benefits under this treaty.

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Article 29 : Diplomatic & consular officials

Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

Notwithstanding the provisions of para 1 of Art. 4 (Fiscal domicile), an individual who is a member of the diplomatic, consular or permanent mission of India situated in UK and who is subject to tax in UK only if derives income from sources therein, shall not be deemed to be a resident of UK.

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DTAA with Netherlands

53

Relevant Dates

Signed on – July 13th, 1988 Date of coming into force – January

21st, 1989 Year of coming into force – A.Y. 1990-

91 Protocol signed on May 10th , 2012

coming into force from November 2nd , 2012.

Treaty with Netherlands

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Netherland taxes covered include: Income tax; Wages tax; Company tax; Dividend tax; and Capital tax

Indian taxes covered include: Income tax Surtax Wealth tax



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NATURE OF PE CONDITIONS

Installation used for exploration activities

Construction PE (Supervision not covered)

Prep. & Aux. Activities

Dep. Agent PE

Six Month

Six Month

“delivery” not permitted Third condition “securing

orders” missing No PE if the DAPE paid

arms’ length commission



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Article 7: Business Profits Protocol clarifies that profit of PE to be

determined not w.r.t. full amount but only w.r.t. remuneration attributable to PE’s activity.

Protocol clarifies that profit of PE to be determined not w.r.t. full amount but only w.r.t. remuneration attributable to PE’s activity.

MFN Clause for HO expenses - Protocol caps the restriction U/s. 44C to that existing on date of signing the Treaty.



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Article 8: Air transport

Taxable where place of effective management is situated.



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Article 8A: Shipping

Profits from the operation of ships in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated.

interest on funds connected with the operation of ships in international traffic shall be regarded as profits from the operation of such ships and the provisions of Article 11 shall not apply in relation to such interest.



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Tax in source country limited to 10%



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Article 12: Royalty and Fees for technical services

Article 12 of India-USA Treaty & MOU to US Treaty substituted for Article 12 by Protocol.

Protocol provides for MFN in respect of R & D cess.



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Gains from the alienation of ships or aircraft operated in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated.

Gains derived by a resident of Netherlands from the alienation of shares (other than shares quoted on an approved stock exchange) forming part of a substantial interest in the capital stock of an Indian company, the value of which shares is derived principally from immovable property situated in India may be taxed in that other State.



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A substantial interest exists when the resident owns 25 per cent or more of the shares of the capital stock of a company.

Gains from alienation of shares is taxable in source country unless realized in course of corporate re-organization / amalgamation etc.



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Unlike in the DTAA with UK, this article is applicable to all residents.

The limit for the number of days i.e. 183 days is available to all residents.



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Article 23: Elimination of Double Taxation

Method

Underlying Tax Credit

Tax Sparing

Credit Method

No

No



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Article 26: Exchange of Information

Inserted w.e.f. November 2nd, 2012 Similar to UK Treaty



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DTAA with Singapore

67

Relevant Dates

• Year of coming into force - A.Y. 1995-96

• Amending Protocol w.e.f. 1st August, 2005

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Treaty with Singapore



Singapore Income tax Indian taxes covered include Income

tax and any surcharge thereon

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NATURE OF PE

Installation for Natural Resources

Construction PE

Supervisory PE

CONDITIONS

Only if used for > 120 days in a fiscal year.

183 days in a fiscal year

183 days in a fiscal year

7013/09/2013




Service PEfor exploration activities > 183 days in a fiscal

year.

For other services > 90 days in a fiscal year (>30 days for related enterprise)

Prep & Aux Activities Includes “Occasional Delivery”

Dep. Agent PE All three alternate tests.

7113/09/2013



Article 7: Business Profits (Article 7)

Art. 7(1) r.w. 7(8) “directly or indirectly” attributable to PE (similar to Japan Treaty Protocol).

Art. 7(3) Deduction of exp. Subject to domestic law

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Article 8: Shipping and Air Transport

Taxable in country of residence

7313/09/2013




Source country – 10% / 15%

7413/09/2013



Article 12: Royalties/ FTS

Source State Tax Limited to 10% (Protocol)

Definition of “royalty” Includes gains from alienation of rights

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Definition of “FTS”

“make available” which “enables …….. to apply the technology”

Development & Transfer of technical plan / design covered only if it enables application of technology.

Excludes services linked to sale of property.

Excludes services in connection with exploration activities.

7613/09/2013




From all property other than immovable property or PE property or ships / aircraft

Taxable only in the country of residence of alienator (Protocol)

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> 90 days in fiscal year

> limited only to – individuals.

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Article 15: Dependant personal service

Taxable @ 15% in source state if the remuneration deductible in employees’ country against FTS derived by employer.

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Article 24: Limitation of Relief

Reduced rate of tax or exemption only applicable to that part of the income which is remitted to the residence state.

8013/09/2013



Article 25: Avoidance of Double Tax

Credit Method

Underlying Tax credit on inbound investment & outbound investment.

Tax sparing by both countries.

8113/09/2013



Limitation on Benefits (protocol)

Treaty Benefit not available

where primary purpose was treaty shopping.

to shell / conduct companies

▪ where annual expenditure on operations less than $200,000 or Rs. 50 lakhs in preceding 24 months.

8213/09/2013



DTAA with Mauritius

83

Entry into Force

• Treaty A.Y. 1983-84

8413/09/2013

Treaty with Mauritius


Article 4: Resident (Article 4)

PIB press release dt. 13.4.2000

(Certificate of Residency to be taken as proof of Residency.)

also refer to SC decision in Azadi Bachao(263 ITR 706 (SC))

8513/09/2013




Construction & Supervisory PE Activity > 9 months

Prep & Aux. activities Delivery not permitted

Dependent Agent - Third condition of securing orders absent

- In second condition “fulfill” used instead of “delivers”

8613/09/2013



Article 7: Business Profits

No restriction on deduction of HO expenses

8713/09/2013



Article 8: Shipping and Air Transport

Taxable where “place of effective management situated”

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Source Country Tax No limit

Exemption in source country To interest paid to government or Bank or if the loan was approved by Government (refer DLJMB (228 ITR 268 (AAR) & Yobo (Unreported)

8913/09/2013



Article 12: Royalties

Source Country Tax Limited to 15%

FTS Not covered

9013/09/2013



Article 13: Capital GainsFrom shares Taxable only in resident country

of alienator.

9113/09/2013



Article 14: Independent Personal Services

No time limit specified only test of “fixed base” provided for.

Available to all residents & not restricted to individuals.

9213/09/2013



Article 22: Other Income

Taxable only in the resident country

9313/09/2013



Article 23: Elimination of Double Tax

Credit method Underlying Tax Credit for both

inbound & outbound investment. Tax sparing by both countries.

9413/09/2013



DTAA with UAE

95

Entry into Force

• Limited Air Traffic treaty w.e.f. A.Y. 1991-92

• Comprehensive Treaty w.e.f. A.Y. 1995-96

• Protocol Amending w.e.f. A.Y. 2009-10

9613/09/2013

Treaty with UAE


Article 4: Resident (Article 4) Concept UAE Individual

(By Protocol)

UAE Company(By Protocol)

UAE Govt. & Govt. Institutions

Abu Dhabi Invt. Authority

“Liable to tax” Physical presence

of 183 days in the calendar year

Managed & controlled wholly in UAE

Deemed to Resident in UAE

Deemed to Resident in UAE

9713/09/2013

Treaty with UAE



Construction PE “Supervision” included

Service PE If service continue for 9 month within any 12 month period

Prep. & Aux Activities “delivery” permitted

Dependent Agent PE Only one test of “authority to conclude contracts”

9813/09/2013

Treaty with UAE


Article 7: Business Profits

Deduction of Expenses (Art. 7(3) –

Subject to domestic law (by Protocol)

9913/09/2013

Treaty with UAE


Article 8: International Traffic

Where taxable – Taxable in country of Residence

10013/09/2013

Treaty with UAE


Article 10: Dividend

Source Country Tax – Limited to 10%

10113/09/2013

Treaty with UAE



Source Country Tax – Limited to 5% / 12.5%

10213/09/2013

Treaty with UAE


Article 12: Royalties

Exclusions from def. of “royalty” –

royalty or other payments for operation of mines or quarries or exploitation of petroleum or natural resources.

“FTS” not covered by the Treaty – implications ?

10313/09/2013

Treaty with UAE



On Shares - Taxable in source country (By protocol)

10413/09/2013

Treaty with UAE


Article 14: Independent Personal Services

No. of days of physical presence 183 days in the fiscal year

Whether limited to individuals & firms

No; available to all residents

10513/09/2013

Treaty with UAE


Article 25: Elimination of Double Tax

Method - Credit Method

Tax Sparing in UAE - Yes Underlying Tax Credit - No

10613/09/2013

Treaty with UAE


Article 26: Non-Discrimination

Taxability of PE at a higher rate – Permitted

10713/09/2013

Treaty with UAE


Limitation of Benefits

By Protocol - No treaty benefits if the main purpose was to obtain the treaty benefit

No objective test specified like in Singapore Treaty or USA Treaty

10813/09/2013

Treaty with UAE


THANK YOU

109

CA Sushil Lakhani

icai - live webcast by the committee on international taxation of icai on friday 13th september,...

Documents

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municipal tax

trade tax

petroleum tax

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income tax act