- India and France signed a protocol to update their Double Taxation Avoidance Convention
- The protocol revises capital gains tax rules, assigning rights to the company's resident country
- Dividend tax rates changed to 5% for 10%+ shareholders and 15% for others
India and France have signed an Amending Protocol to revise the India-France Double Taxation Avoidance Convention (DTAC), updating the three-decade-old agreement to reflect current international tax standards and strengthen bilateral cooperation.
The protocol was signed during the recent visit of the French President to India by Central Board of Direct Taxes (CBDT) Chairperson Ravi Agrawal and France's Ambassador to India, Thierry Mathou, on behalf of their respective governments.
Key Tax Changes
One of the most significant changes relates to capital gains taxation. The amended provisions grant taxing rights on gains arising from the sale of shares to the country where the company is resident, providing clarity on jurisdiction in such transactions.
The protocol also removes the Most-Favoured-Nation (MFN) clause from the treaty, addressing long-standing interpretational disputes. Dividend taxation has been revised by replacing a single 10% rate with a two-tier structure: a 5% rate for shareholders holding at least 10% equity and 15% for others.
In addition, the definition of "Fees for Technical Services" has been aligned with the India-US tax treaty framework. The scope of "Permanent Establishment" has been expanded to include a Service PE, potentially widening the tax base for cross-border services.
Greater Information Exchange
The agreement strengthens provisions related to exchange of information and introduces a new article on assistance in tax collection, in line with international norms. It also incorporates applicable provisions of the OECD's Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI), which both countries have ratified.
Officials said the amendments are aimed at enhancing tax certainty for investors while improving administrative cooperation between the two jurisdictions.
The revised provisions will come into force after both countries complete their respective domestic procedures and formally notify each other.
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