By Prabhakar KS, Shree Tax Chambers, Bengaluru, India
An amending protocol to the China-India tax treaty entered into force from June 5, the Indian government announced on July 17.
To carry out desired amendments, the protocol was signed on 26 November 2018 in New Delhi. It amends the 1994 income tax treaty between China and India, also signed in New Delhi.
The latest protocol has brought in key amendments to the existing agreement on the basis of recommendations of the 2015 OECD/G20 Base Erosion Profit Shifting Plan. For example, the preamble states that the treaty is not designed to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance including through treaty shopping arrangements.
The treaty also states that by mutual agreement, the competent authorities can determine at taxpayer’s residence having regard to place of effective management (POEM). Further it contains provisions allowing the tax authorities of the two countries to exchange information to enforce tax laws.
It seems that both the countries finally have woken up to the reality of abuse of tax treaty provisions by multinational entities through treaty shopping and other means. As a positive sign, India has revised its tax treaties with other major economies such as Mauritius, Singapore, and Switzerland recent past.
As of now, India has signed 88 bilateral and multilateral tax agreements.
— Prabhakar K S is Proprietor of Shree Tax Chambers, Bengaluru, , India.
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