Background
India had signed with Australia an agreement ( DTAA) for the avoidance of double taxation and the prevention of fiscal evasion on July 25, 1991. The Ministry of Finance has now issued a press release on December 16, 2011 stating that the Government of India and the Government of Australia has entered into Protocol amending the India-Australia DTAA. The Protocol was finalized in February 2011 and shall enter into force once notified.
Salient features of the protocol amending India-Australia DTAA
Article 5(3) of the DTAA has been substituted to provide:
‒ A threshold limit for establishing Permanent Establishment (PE) arising out of activities in the other State
Carries on activities ( including the operation of equipment) in the other State relating to exploration for or exploitation of natural resources (aggregate of 90 days in any 12 month period);
operates substantial equipment for a period or periods aggregating to 183 days in any 12 month period)
Scope of Service PE has been widened to include all services including those defined under Article 12 dealing with royalties. The period of furnishing services within that State to constitute a Service PE has been extended to 183 days in any 12 month period from the existing 90 days in respect of non-associated enterprise / 1 day in respect of associated enterprise.
Article 7(1)(b) relating to the condition of profits of the enterprise arising in that State from the sale of goods or merchandise of the same or similar kind as those sold or other business activities of the same or similar nature carried on, through that PE has been omitted.
Article 24 A dealing with Non-Discrimination has been inserted to provide amongst others that:
‒ Nationals of one country shall not be discriminated against the nationals of the other country in the same circumstances in line with international practices.
‒ Except where the provisions Article 9(1), Article 11(6) or Article 12(6) apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.
‒ The Article would not apply to any provision of the laws of a Contracting state which is designed to prevent the avoidance or evasion of taxes, including measures designed to address thin capitalization or to ensure that taxes can be effectively collected or recovered
Scope of Article 26 on Exchange of Information has been enlarged in line with current international standards to provide effective exchange of information on tax matters including bank information. Also such information received may be used for any other purposes under the laws of both the countries provided the competent authority of the supplying country authorizes such use.
Article 26A relating to Assistance in Collection of Taxes has been inserted to provide for assistance in collection of taxes when such taxes are due under the domestic laws and regulations. The assets or moneys kept in one country can be recovered by the other country for the purposes of recovery of taxes by following certain conditions and procedure.
The Protocol shall come into force once notified and shall have effect
‒ In the case of Australia, beginning on or after 1 July following the date on which the Protocol enters into force;
‒ In the case of India, fiscal year beginning on or after 1 April following the date on which the Protocol enters into force;
‒ Article dealing with Non-Discrimination and Exchange of Information, from the date on which the Protocol enters into force;
‒ Article dealing with Assistance in Collection of Taxes, from the date agreed in an exchange of notes through the diplomatic channel.
Source: PIB Press Release dated December 16, 2011 and Tax Analysts
India had signed with Australia an agreement ( DTAA) for the avoidance of double taxation and the prevention of fiscal evasion on July 25, 1991. The Ministry of Finance has now issued a press release on December 16, 2011 stating that the Government of India and the Government of Australia has entered into Protocol amending the India-Australia DTAA. The Protocol was finalized in February 2011 and shall enter into force once notified.
Salient features of the protocol amending India-Australia DTAA
Article 5(3) of the DTAA has been substituted to provide:
‒ A threshold limit for establishing Permanent Establishment (PE) arising out of activities in the other State
Carries on activities ( including the operation of equipment) in the other State relating to exploration for or exploitation of natural resources (aggregate of 90 days in any 12 month period);
operates substantial equipment for a period or periods aggregating to 183 days in any 12 month period)
Scope of Service PE has been widened to include all services including those defined under Article 12 dealing with royalties. The period of furnishing services within that State to constitute a Service PE has been extended to 183 days in any 12 month period from the existing 90 days in respect of non-associated enterprise / 1 day in respect of associated enterprise.
Article 7(1)(b) relating to the condition of profits of the enterprise arising in that State from the sale of goods or merchandise of the same or similar kind as those sold or other business activities of the same or similar nature carried on, through that PE has been omitted.
Article 24 A dealing with Non-Discrimination has been inserted to provide amongst others that:
‒ Nationals of one country shall not be discriminated against the nationals of the other country in the same circumstances in line with international practices.
‒ Except where the provisions Article 9(1), Article 11(6) or Article 12(6) apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.
‒ The Article would not apply to any provision of the laws of a Contracting state which is designed to prevent the avoidance or evasion of taxes, including measures designed to address thin capitalization or to ensure that taxes can be effectively collected or recovered
Scope of Article 26 on Exchange of Information has been enlarged in line with current international standards to provide effective exchange of information on tax matters including bank information. Also such information received may be used for any other purposes under the laws of both the countries provided the competent authority of the supplying country authorizes such use.
Article 26A relating to Assistance in Collection of Taxes has been inserted to provide for assistance in collection of taxes when such taxes are due under the domestic laws and regulations. The assets or moneys kept in one country can be recovered by the other country for the purposes of recovery of taxes by following certain conditions and procedure.
The Protocol shall come into force once notified and shall have effect
‒ In the case of Australia, beginning on or after 1 July following the date on which the Protocol enters into force;
‒ In the case of India, fiscal year beginning on or after 1 April following the date on which the Protocol enters into force;
‒ Article dealing with Non-Discrimination and Exchange of Information, from the date on which the Protocol enters into force;
‒ Article dealing with Assistance in Collection of Taxes, from the date agreed in an exchange of notes through the diplomatic channel.
Source: PIB Press Release dated December 16, 2011 and Tax Analysts
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