Double Taxation Avoidance Agreement (DTAA) between India and China: An Overview
India and China, being two of the world`s fastest-growing economies, have established extensive trade and investment ties over the years. To avoid the double taxation of the same income in both countries, the governments of India and China have signed a Double Taxation Avoidance Agreement (DTAA) on December 2018.
A double taxation avoidance agreement is a treaty between two countries that aims to eliminate the double taxation of the same income in both countries. This means that if an individual or a company receives income in one country but is liable to pay taxes on it in another country, the DTAA makes sure that the double taxation is avoided, so that the earnings are only taxed in one of the countries, as per the treaty`s provisions.
The DTAA between India and China is designed to cover all types of income that are subject to taxation in the two countries, including business profits, dividends, interest, royalties, and capital gains. The agreement also provides for the exchange of information and assistance in tax collection between the two countries.
The DTAA, which is based on the recommendations of the Organisation for Economic Co-operation and Development (OECD), has several significant provisions that are beneficial to both India and China. One such provision is the taxation of capital gains from the sale of shares. As per the agreement, capital gains from the sale of shares of a company registered in one country, but whose value is primarily derived from the assets located in the other country, will only be taxed in the country where the seller is a resident.
Another important provision of the DTAA is the reduction of tax rates on dividends, interest, and royalties. As per the agreement, the tax rate on dividends is capped at 10% for shares held by a company in the other country, while the tax rate on interest is capped at 10% for equities and 15% for other debt instruments. The tax rate on royalties is capped at 10%.
With the signing of the DTAA, the two countries have also set up a mechanism for resolving any disputes that may arise between Indian and Chinese tax authorities. This mechanism includes direct negotiations between the two countries, as well as arbitration for cases where a resolution cannot be reached through negotiations.
The DTAA between India and China is a significant development in the bilateral ties between the two countries, as it promotes greater economic cooperation and investment between the two nations. The agreement will help to boost the flow of foreign direct investment (FDI) between India and China, and will also provide greater certainty and predictability to businesses operating in both countries.
In conclusion, the DTAA between India and China is a welcome development that will help to promote greater economic cooperation and investment between the two countries. The agreement provides assurance to businesses operating in both countries regarding the taxation of their income and will help to boost the flow of FDI between India and China. The treaty will also provide for the resolution of any disputes that may arise between Indian and Chinese tax authorities, and the exchanges of information and assistance in tax collection.