Supplementary Protocol modifying the agreement between the Government of India and the Government of Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income - 0321(E) - Income Tax

Supplementary Protocol modifying the agreement between the Government of India and the Government of Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income Notification Number: 0321(E) Date 02-03-1988 File Number: 505/1/87-FTD Where the annexed Supplementary Protocol modifying the agreement between the Government of India and the Government of Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and the protocol signed at Brussels on February 7, 1974, has come into force on the 23rd January, 1988, after the exchange of letters certifying that the proper procedure was fulfilled in each Contracting State as required by article 10 of the said Supplementary Protocol. 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 all the provisions of the said Supplementary Protocol shall be given effect to in the Union of India. ANNEXURE (Please insert the Supplementary Protocol here) ( Sd. ) P. K. Appachoo, Joint Secretary to the Government of India . SUPPLEMENTARY PROTOCOL MODIFYING THE AGREEMENT BETWEEN THE GOVERNMENT OF INDIA AND THE GOVERNMENT OF BELGIUM FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND THE PROTOCOL SIGNED AT BRUSSELS ON FEBRUARY 7, 1974 . The Government of India and the Government of Belgium, Desiring to modify in certain respects the agreement between the Government of India and the Government of Belgium for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (hereinafter referred to as " the agreement ") and the Protocol signed at Brussels on February 7, 1974, have decided to conclude for this purpose a Supplementary Protocol and have agreed upon the following articles: Article 1 The text of paragraph 3 of article 7 of the agreement is deleted and replaced by the following: " 3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment whether in the State in which the * See [1975] 101 ITR (St.) 6. permanent establishment is situated or elsewhere; but the deduction so allowed for the executive and general administrative expenses incurred outside the Contracting State in which the permanent establishment is situated shall be in accordance with the provisions of and subject to the limitation of the taxation laws of that State. Where, however, the taxation laws of the Contracting State where the permanent establishment is situated do not provide for the deduction of such expenses, the deduction to be allowed shall not exceed 5 per cent. of the net profit of the permanent establishment as computed before the deduction. However, no deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices. " Article 2 The text of paragraph 3 of article 8 of the agreement is deleted and replaced by the following: " 3. Income of an enterprise of a Contracting State derived from the other Contracting State from the operation of ships in international traffic may be taxed in the other Contracting State, but the tax chargeable in that other Contracting State on such income shall be reduced by an amount equal to 50 per cent. of such tax. " Article 3 The text of article 10 of the agreement is deleted and replaced by the following: " 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a company which is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent. of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The provisions regarding the reduction in the rate of tax in paragraph 2 shall apply in respect of dividends arising out of investments made after the entry into force of the Supplementary Protocol modifying this agreement. 4. The term " dividends " as used in this Article means income from shares, " jouissance " shares or " jouissance " rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. This term means also income-even paid in the form of interest-which is taxable under the head of income on capital invested by the members of a company other than a company with share capital, which is a resident of Belgium. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 15, as the case may be, shall apply. 6. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to a person who is a resident of the first mentioned State, except in so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. " Article 4 The text of article 11 of the agreement is deleted and replaced by the following: " 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent. of the gross amount of the interest in respect of a loan advanced or debt created after the date of entry into force of the Supplementary Protocol modifying this agreement. 3. The term " interest " as used in this article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures; however, the term " interest " shall not include for the purpose of this article penalty charges for late payment nor interest regarded as dividends under the second sentence of paragraph 4 of article 10. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 15, as the case may be, shall apply. 5. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable in the Contracting State in which the interest arises according to the law of that State. " Article 5 1. The title and the text of article 12 of the agreement are deleted and replaced by the following: " ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State provided that where the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State and the royalties and fees for technical services are paid in respect of a right or property which is granted, or under a Contract which is signed, after the date of entry into force of the Supplementary Protocol modifying this agreement, the tax so charged shall not exceed 30 per cent. of the gross amount of the royalties or fees for technical services. 3. (a) The term " royalties " as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph and television films, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience. (b) The term " fees for technical services " as used in this article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in article 15, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which, or the contract under which, the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 15, as the case may be, shall apply. 5. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to make the payments was incurred and the payments are borne by such permanent establishment or fixed base, then the royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services, having regard to the use, right, information or technical services for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the royalties or fees for technical services shall remain taxable in the Contracting State in which the royalties or fees for technical services arise, according to the law of that State. " 2. Article 13 of the agreement is deleted. Article 6 The text of article 15 of the agreement is deleted and replaced by the following: " INDEPENDENT PERSONAL SERVICES 1. Income derived by a resident of Belgium in respect of professional services rendered or other independent activities of a similar character performed in India may be taxed in India if (a) he is present in India for a period or periods exceeding in the aggregate 183 days during the relevant previous year; or (b) he has a fixed base regularly available to him in India for the purpose of performing his services or activities; but in each case only so much of the income as is attributable to those services or activities. 2. Income derived by a resident of India in respect of professional services rendered or other independent activities of a similar character performed in Belgium may be taxed in Belgium if (a) he is present in Belgium for a period or periods exceeding in the aggregate 183 days during the relevant taxable period; or (b) he has a fixed base regularly available to him in Belgium for the purpose of performing his services or activities; but in each case, only so much of the income as is attributable to those services or activities. 3. The term " professional services " includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. " Article 7 The text of sub-paragraph (c) of paragraph 3 of article 23 of the agreement is deleted and replaced by the following: " (c) Where a resident of Belgium receives income by way of dividends referred to in article 10 (not being dividends covered by sub-paragraph (b) of this paragraph) or interest referred to in article 11 or royalties referred to in paragraph 3(a) of article 12 of this agreement, Belgium shall allow, against the Belgian tax chargeable on such income, a credit in respect of tax chargeable in India on such income, whether actually charged or spared. The amount of the credit to be so allowed shall be computed on the gross amount of dividends, interest or royalties so received after deduction of Indian tax, if any, at a rate which shall not be less than 15 per cent. in the case of dividends and interest and 20 per cent. in the case of royalties. " Article 8 The text of paragraph (c) of the Protocol to the agreement is deleted and replaced by the following: " (c) The rate of tax provided by paragraph 2 of article 10 has been fixed in consideration of the fiscal treatment presently applicable under Belgian national law to dividends derived by a company which is a resident of Belgium from permanent holdings in the share capital of non-resident companies. However, in the case of any change of the Belgian national law in this respect affecting the tax treatment of the dividend income in Belgium, the reduced rate of 15 per cent. provided in article 10 would no longer apply. " Article 9 In paragraph (d) of the Protocol to the agreement, the words " dividends or interest " shall be substituted for the words " dividends, interest or royalties ". Article 10 1. This Supplementary Protocol shall be approved in accordance with the laws in force in each of the Contracting States. It shall enter into force thirty days after the exchange of letters certifying that the proper procedure was fulfilled in each Contracting State. The exchange of letters shall take place at Brussels. 2. The provisions of this Supplementary Protocol shall have effect: (a) In India, in respect of income derived during any previous year beginning on or after the 1st day of January of the calendar year in which the exchange of letters takes place; (b) In Belgium: (i) as respects all tax due at source on income credited or payable on or after the 1st day of January of the calendar year in which the exchange of letters takes place; (ii) as respects all tax other than tax due at source on income derived during any taxable period ending on or after the 31st day of December of the said calendar year. 3. This Supplementary Protocol shall remain in force as long as the agreement and the Protocol signed at Brussels on February 7, 1974, are in effect and in the event of termination of such agreement and Protocol, it shall terminate simultaneously with them. In WITNESS WHEREOF the undersigned, duly authorised thereto, have signed the present Supplementary Protocol. Done on this 20th day of October, 1984, in New Delhi on two original copies each in Hindi, English, French and Netherlands languages, all the four texts being equally authentic. In case of divergence between the texts, the English text shall be the operative one. For the Government of India , ( Sd. ) K. N. Singh For the Government of Belgium , ( Sd. ) J. Hollants Van Loocke.