Source: PIB
Context:
India and France have signed an Amending Protocol to update their Double Taxation Avoidance Convention (originally signed in 1992). The agreement was signed during the visit of the President of France to India.
The protocol aims to modernise tax rules, reduce disputes and boost investment and economic cooperation between the two countries.
What is a DTAC?
A Double Taxation Avoidance Convention is a tax treaty between two countries to:
- prevent the same income from being taxed twice
- allocate taxing rights between countries
- promote cross-border investment and trade
Key Changes in the Amending Protocol
1. Capital gains taxation — source country gets full rights
Tax on capital gains from sale of shares will be levied in the country where the company is resident.
Meaning:
If shares of an Indian company are sold, India gets full taxing rights.
2. Removal of Most-Favoured Nation (MFN) clause
The MFN clause has been deleted.
Impact:
- Ends disputes over automatic extension of tax benefits from other treaties.
- Provides clarity and legal certainty in tax treatment.
3. New dividend tax structure
Earlier: flat 10% withholding tax.
Now:
- 5% tax — if shareholder holds at least 10% of company capital
- 15% tax — all other cases
4. Fees for Technical Services (FTS) redefined
Definition aligned with the India–US tax treaty.
This narrows and clarifies scope of taxable technical service income.
5. Service Permanent Establishment (PE) introduced
Provision added to tax profits from services performed in a country beyond a defined threshold.
Meaning:
Foreign service providers operating substantially in India may be taxed in India.
6. Stronger tax cooperation
- Updated exchange of information provisions
- New article on assistance in collection of taxes
- Easier cross-border tax enforcement
7. Alignment with global tax reforms
Incorporates provisions of the BEPS Multilateral Instrument (MLI), which aims to:
- prevent tax avoidance
- curb profit shifting
- improve treaty integrity
