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TMI BlogAgreement for Avoidance of double taxation and prevention of fiscal evasion with foreign countries - Royal Government of BhutanX X X X Extracts X X X X X X X X Extracts X X X X ..... ll have effect in India in respect of income derived in any fiscal year beginning on or after the first day of April following the calendar year in which the Agreement enters into force; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that all the provisions of said Agreement, as annexed hereto, shall be given effect to in the Union of India. [Notification No. 42/2014/F. No. 503/4/2004-FTD-II] RAJAT BANSAL, Jt. Secy. Annexure AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE ROYAL GOVERNMENT OF BHUTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME The Government of the Republic of India and the Royal Government of Bhutan, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and with a view to promoting economic cooperation between the two countries, have agreed as follows: Article 1 PERSONS COVERED This Agreement shall apply to persons who are residents of one or both of the Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prise" applies to the carrying on of any business; g) the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State; h) the term "international traffic" means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State; i) the term "competent authority" means: (i) in India: the Finance Minister, Government of India, or his authorized representative; (ii) in Bhutan : the Finance Minister, Royal Government of Bhutan, or his authorized representative; j) the term "national" means: (i) any individual possessing the nationality of a Contracting State; (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State; k) the term "tax" means Indian or Bhutanese tax, as the context requires, but shall not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of neither of them, the competent authorities of the Contracting States shall endeavour to settle the question by mutual Agreement. 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which its place of effective management is situated cannot be determined, then the competent authorities of the Contracting States shall endeavour to settle the question by mutual Agreement. Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: a) a place of management; b) a branch, c) an office; d) a factory; e) a workshop; f) a sales outlet; g) a warehouse in relation to a person providing storage facilities for others; h) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; and i) a min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph, or b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, or c) habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself. 6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other Contracting State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies. 7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. Where the correct amount of profits attributable to a permanent establishment cannot be readily determined or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. The estimate adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article. 3. In determining the profits of 'a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the tax law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracting State from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 2. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the operator of the ship is a resident. 3. Profits derived by a transportation enterprise in a Contracting State in which the place of effective management of the enterprise is situated, from the use, maintenance, or rental of containers (including trailers and other equipment for the transport of containers) used for the transport of goods or merchandise in international traffic which is supplementary or incidental to operation of its ship or aircraft in international traffic shall be taxable only in that Contracting State unless the containers are used solely within the other Contracting State. 4. For the purposes of this Article, interest on investments directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft if they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term "dividends" as used in this Article means income from 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. 4. 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, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 5. 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, except insofar as such dividends are paid to a resident of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In such case the provisions of Article 7 shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is 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 in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated. 7. 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 according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. Article 12 ROYALTIES AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt shall apply. 5. (a) Royalties and fees for technical or professional 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 or professional services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the liability to pay the royalties or fees for technical or professional services was incurred, and such royalties or fees for technical or professional services are borne by such permanent establishment, then such royalties or fees for technical or professional services shall be deemed to arise in the Contracting State in which the permanent establishment is situated. (b) Where under sub-paragraph (a) royalties or fees for technical or professional services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for technical or professional services relate to services performed, in one of the Contracting States, the royalties or fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if. a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year or income year, as the case may be, concerned, and, b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, by an enterprise of a Contracting State may be taxed in that State. Article 15 DIRECTORS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State. b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who: (i) is a national of that State; or (ii) did not become a resident of that State solely for the purpose of rendering the services. 2. a) Any pension paid by, or out of funds created by, a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State. b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State. 3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages and other similar remuneration and to pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political sub-division or a local authority thereof. Article 19 PROFESSORS, TEACHERS AND RESEARCH S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a contracting state not dealt within the foregoing Articles of this Agreement and arising in the other Contracting State may also be taxed in that other state. Article 22 METHODS FOR ELIMINATION OF DOUBLE TAXATION 1. The laws in either of the contracting states shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. Where income is subject to tax in both contracting states, relief from double taxation shall be given in accordance with this Article. 2. Double taxation shall be eliminated as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in respect of: (i) income by way of dividends, interest, capital gains or from activities not directly connected with the running of educational or vocational institute or health service centre or hospital, as the case may be; or (ii) income derived from any arrangement, entered into by an Indian resident, covered by the provisions of Article 27(Limitation of Benefits) of the Agreement. 5. The provisions of paragraph 3 shall apply for the first seven years from the date of entry into force of this Agreement. This period may be extended by mutual agreement between the competent authorities. Article 23 NON-DISCRIMINATION 1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States. 2. The taxation on a permanent establishment which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 23, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement. 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual Agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with, the Agreement. Any Agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States. 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual Agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult tog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; b) to supply information including documents or certified copies of the document which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public). 5. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 4 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection. 5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 of this Article shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 of this Article shall not, in that State, have any priority applicable to that revenue claim under the laws of the other Contracting State. 6. Proceedings with respect to the existence, validity or the amount of a revenue claim of a Contracting State shall only be brought before the courts or administrative bodies of that State. Nothing in this Article shall be construed as creating or providing any right to such proceedings before any court or administrative body of the other Contracting State. 7. Where, at any time after a request has been made by a Contracting State under paragraph 3 or 4 and before the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international law or under the provisions of special Agreements. Article 29 ENTRY INTO FORCE 1. Each of the Contracting States shall notify to the other in writing, through diplomatic channels, the completion of the procedures required by its law for the entry into force of this Agreement. 2. This Agreement shall enter into force on the date of the later of the notifications referred to in paragraph I of this Article. 3. The provisions of this Agreement shall thereupon have effect: (a) In India, in respect of income derived in any fiscal year beginning on or after the first day of April next following the calendar year in which the Agreement enters into force; and (b) In Bhutan, in respect of income arising for any year of income beginning or after the first day of January next following the calendar year in which the Agreement enters into force. Article 30 TERMINATION This Agreement shall remain in force indefinitely until terminated by a Contracting State. Either Contracting State may terminate the Agreement, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year beginning after the expiration of five years ..... X X X X Extracts X X X X X X X X Extracts X X X X
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