Annexure - annex to 1986 agreement - Canada

Annex to 1986 agreement Amendment of provisions relating to rate of tax on royalties and fees for technical services under Double Taxation Agreement with Canada 1. The existing tax treaty with Canada was signed on 30-10-1985 and notified on 25-9-1986, Para 2 of Article 13 of the Agreement provides the rate of taxation at 30 per cent in respect of royalties and fees for technical services in the country where the same arises. Para 4 of the Protocol to the said Agreement reads as below : With reference to paragraph 2 of Article 13, in the event that pursuant to an Agreement or a Convention concluded with a State which is a member of the Organisation for Economic Co-operation and Development after the date of signature of this Agreement India would accept a rate lower than 30 per cent for the taxation of royalties or fees for technical services paid by a resident of India to a resident of that State, it is understood that such lower rate will automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where the royalties or fees for technical services are paid in respect of a right or property which is first granted, or under a contract which is signed, after the date of entry into force of the first-mentioned Agreement or Convention. 2. Subsequent to the signing of the Agreement with Canada, India has entered into Agreements with other OECD countries wherein the rate of taxation in respect of royalties and fees for technical services has been agreed at 20 per cent of the gross amount. The revised Agreement with Sweden, which came into force on 12-12-1988, is the first of such Agreements. Accordingly, after consultation with the Canadian Government, a notification has been issued on 24-6-1992, notifying that the rate of tax of 20 per cent will be applicable to royalties and fees for technical services paid by a resident of India to a resident of Canada. This reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed, after 12-12-1988. A copy of the notification bearing GSR No. 635(E), dated 24-6-1992 is enclosed. 3. The Canadian Government have also passed Remission Order dated 3-12-1991 making the revised rate as above applicable to Indian residents as well in respect of royalties or fees for technical services paid by a Canadian resident. A copy of this order is enclosed. Explanatory note (This note is not part of the Order) This remission order effectively lowers the rate of non-resident withholding tax payable under Part XIII of the Income-tax Act from 25 per cent to 20 per cent with respect to royalties or fees paid or credited in respect of a right or property which is first granted, or under a contract which is signed, after 12-12-1988 to residents of India for technical services. Canada and India are reviewing their tax treaty and will be re-examining rates of non-resident withholding tax. Pending conclusion of those negotiations, this remission order will provide residents of India with the same rate of non-resident withholding tax on fees or royalties for technical services as it provided by India for residents of Canada on such fees or royalties. Statistics are not available on the annual levels of royalty payments distributed to Indian residents and the associated withholding taxes. Therefore, the annual revenue cost of a five percentage point reduction in the withholding tax levied on such royalties must be based on a breakdown of related but more aggregated data. Using the best information available, the annual cost of this remission order would almost certainly be less than $ 1 million and would likely not exceed $ 50,000. Order respecting the remission of income-tax, interest and penalties on royalties or fees received from Canada by residents of India for technical services Short title 1. This Order may be cited as the residents of India Remission Order. Interpretation 2. In this Order, Act means the Income-tax Act; (Loi) Agreement means the Agreement between the Government of Canada and the Government of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on income set out in Schedule III to Chapter 7 of the Statutes of Canada, 1986; (Accord) Person has the meaning assigned by paragraph 1(c) of Article 3 of the Agreement (personne). Remission 3. Remission is hereby granted to any person who is a resident of India, within the meaning of the Agreement, for any amount paid or credited to that person in respect of royalties in relation to a right or property that is granted after 12-12-1988 or in respect of fees for technical services under a contract that is signed after that date, of an amount equal to the amount by which (a) the aggregate of the taxes, interest and penalties payable by that person under the Act with respect to the amount so paid or credited, exceeds (b) the aggregate of the taxes, interest and penalties that would have been payable by that person under the Act with respect to the amount so paid or credited, if the reference to a rate of 30 per cent in paragraph 2 of Article 13 of the Agreement were read as a reference to a rate of 20 per cent. His Excellency the Governor General in Council, considering that it is in the public interest on the recommendation of the Minister of Finance pursuant to section 23(2) of the Financial Administration Act is pleased hereby to make the annexed Order respecting the remission of income-tax, interest and penalties on royalties or fees received from Canada by residents of India for technical services. Notification : No. GSR 635(E), dated 24-6-1992. Whereas paragraph 4 of the Protocol to the Agreement between the Government of India and the Government of Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income which was notified by the Government of India in the Ministry of Finance (Department of Revenue) in the Gazette of India, Extraordinary, Part II, section 3, sub-section (i) vide No. GSR 1108(E), dated 25-9-1986, provides that in the event that pursuant to an Agreement or a Convention concluded with a State which is a member of the Organisation for Economic Co-operation and Development after the date of signature of the Agreement, that is 30-10-1985. India would accept a rate lower than 30 per cent for the taxation of royalties or fees for technical services paid by a resident of India to a resident of that State, such lower rate would automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where such payment is made in respect of a right or property which is first granted, or under a contract which is signed after the date of entry into force of the first-mentioned agreement. And whereas in the Convention with the Government of the Kingdom of Sweden, which is a member of the Organisation for Economic Co-operation and Development, and which entered into force on 12-12-1988, the Government of India has accepted the rate of 20 per cent for the taxation of royalties and fees for technical services; Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that the rate of taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada, where such payment is made in respect of a right or property which is first granted, or under a contract which is signed, after 12-12-1988 shall be twenty per cent. Circular : No. 638, dated 28-10-1992.