The Double Taxation Relief (Taxes on Income) (India) Order 1993

Made: 20th July 1993

At the Court at Buckingham Palace, the 20th day of July 1993 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income)(India) Order 1993.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of India with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of India;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of India concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE REPUBLIC OF INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India;

Desiring to conclude a new Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

Article 1 — Scope of the Convention

Article 2 — Taxes covered

Article 3 — General definitions

Article 4 — Fiscal domicile

Article 5 — Permanent establishment

Article 6 — Income from immovable property

Article 7 — Business profits

Article 8 — Air transport

Article 9 — Shipping

Article 10 — Associated enterprises

Article 11 — Dividends

Article 12 — Interest

Article 13 — Royalties and fees for technical services

Article 14 — Capital gains

Except as provided in Article 8 (Air transport) and 9 (Shipping) of this Convention, each Contracting State may tax capital gains in accordance with the provisions of its domestic law.

Article 15 — Independent personal services

Article 16 — Dependent personal services

Article 17 — Directors' fees

Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 18 — Artistes and athletes

Article 19 — Governmental remuneration and pensions

Article 20 — Pensions and annuities

Article 21 — Students and trainees

Article 22 — Teachers

Article 23 — Other income

Article 24 — Elimination of double taxation

Article 25 — Partnerships

Article 26 — Non-discrimination

Article 27 — Mutual agreement procedure

Article 28 — Exchange of information

Article 29 — Diplomatic and consular officials

Article 30 — Entry into force

Article 31 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through the diplomatic channel, by giving notice of termination at least six months before the end of any calendar year beginning after the expiration of ten years from the date of entry into force of the Convention. In such event, the Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (iii) in respect of petroleum revenue tax, for any chargeable period beginning on or after 1st January in the calendar year next following that in which the notice is given;

• (b) in India, in respect of income arising in any fiscal year beginning on or after the first day of April next following the calendar year in which the notice is given.

In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Convention.

Done on this 25th day of January 1993, in New Delhi on two original copies each in the English and Hindi languages, both texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one.

For the Government of the United Kingdom of Great Britain and Northern Ireland:

Nicholas Fenn

For the Government of the Republic of India:

S. Ramamurti

PART II — EXCHANGE OF NOTES

Your Excellency

New Delhi

25th January 1993

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland:

• (a) that, in applying sub-paragraph (j) of paragraph (2) of Article 5, for the purpose of determining whether a building site or construction, installation or assembly project or supervisory activity in connection therewith has continued for a period of more than six months, the Contracting States shall:

• (i) take no account of time previously spent by employees of the enterprise on other sites or projects which have no connection with the site or project in question;

• (ii) apply the more than six months test to each site or project which has no connection with any other site or project and to each group of connected sites or projects; and

• (iii) regard a building site as a single site, even if several contracts have been entered into for the work being done, provided that it forms a coherent whole commercially and geographically;

• (b) that, in applying paragraph (3) of Article 7, for the purpose of determining whether a permanent establishment has taken an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, the Contracting States shall take into consideration all relevant circumstances and, in particular, the fact that a contract or order relating to the purchase or provision of goods or services was negotiated or placed with the head office of the enterprise, rather than with the permanent establishment, shall not preclude them from determining that the permanent establishment did take an active part in negotiating, concluding or fulfilling that contract;

• (c) that, in applying paragraph (1) of Article 8, for the purpose of determining the profits of an enterprise which are derived from the operation of aircraft in international traffic, the Contracting States shall treat interest derived from the investment or deposit of receipts arising directly from the operation of aircraft in international traffic as being included in those profits, but shall not treat interest derived from the reinvestment of such interest as being so included.

If the foregoing proposal is acceptable to the Government of the Republic of India I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter.

Nicholas Fenn

His Excellency the High Commissioner of the United Kingdom of Great Britain and Northern Ireland

Your Excellency

New Delhi

25th January 1993

I have the honour to acknowledge receipt of Your Excellency’s Note of today which reads as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland: (a) that, in applying sub-paragraph (j) of paragraph (2) of Article 5, for the purpose of determining whether a building site or construction, installation or assembly project or supervisory activity in connection therewith has continued for a period of more than six months, the Contracting States shall: (i) take no account of time previously spent by employees of the enterprises on other sites or projects which have no connection with the site or project in question; (ii) apply the more than six months test to each site or project which has no connection with any other site or project and to each group of connected sites or projects; and (iii) regard a building site as a single site, even if several contracts have been entered into for the work being done, provided that it forms a coherent whole commercially and geographically; (b) that, in applying paragraph (3) of Article 7, for the purpose of determining whether a permanent establishment has taken an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, the Contracting States shall take into consideration all relevant circumstances and, in particular, the fact that a contract or order relating to the purpose of provision of goods or services was negotiated or placed with the head office of the enterprise, rather than with the permanent establishment, shall not preclude them from determining that the permanent establishment did take an active part in negotiating, concluding or fulfilling that contract; (c) that, in applying paragraph (1) of Article 8, for the purpose of determining the profits of an enterprise which are derived from the operation of aircraft in international traffic, the Contracting States shall treat interest derived from the investment or deposit or receipts arising directly from the operation of aircraft in international traffic as being included in those profits, but shall not treat interest derived from the reinvestment of such interest as being so included. If the foregoing proposal is acceptable to the Government of the Republic of India I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter.

In reply, I have the honour to state that the Government of the Republic of India accepts the proposal made therein and agrees that Your Excellency’s Note and the present reply shall constitute an agreement between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland in this matter.

I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration.

S Ramamurti

His Excellency the Chairman of the Central Board of Direct Taxes India

Signed

N. H. Nicholls — Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with India is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property may be taxed in the country in which the property is situated (Article 6).

Air transport and shipping profits are generally to be taxed only in the residence state of the operator (Articles 8 and 9).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 10).

The Convention provides that where a United Kingdom company pays a dividend to an individual resident of India, the recipient will, subject to certain conditions, receive the tax credit to which an individual resident in the United Kingdom and in receipt of such a dividend would be entitled, less tax at a rate not exceeding 15 per cent on the aggregate of the dividend and the tax credit. In the case of a dividend paid by an Indian company to a resident of the United Kingdom the tax charged in India is not to exceed 15 per cent of the gross amount of the dividend (Article 11).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 15 per cent of the gross amount flowing to the other country. In the case of interest paid to a bank the rate of tax in the country of source is not to exceed 10 per cent. Certain categories of interest (eg interest paid to the Government of the other country) will be exempt from tax in the source state (Article 12).

The rate of tax in the country of source on industrial royalties and for fees for technical services connected with them and flowing to the other country is 10 per cent. However, for certain other classes of royalties and fees for technical services, the rate of tax in the country of source is 20 per cent in the case of non-Government payers for the first five years of the life of the Convention, reducing to 15 per cent (the same as for Government payers) in subsequent years (Article 13).

Each country may tax capital gains in accordance with its domestic law although gains from the alienation of ships or aircraft operated in international traffic shall be taxable only in the country of residence of the operator (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17). Income derived from the activities of artistes and athletes may be taxed in the country in which those activities are performed (Article 18). Government service remuneration and pensions are normally to be taxed only by the paying Government (Article 19). Occupational pensions (other than those paid in respect of government service) and annuities are to be taxed only in the recipient’s country of residence (Article 20). Payments made to visiting students, apprentices and business trainees are generally exempt from tax in the country visited (Article 21). There is a limited exemption for visiting teachers (Article 22). Other income (with the exception of income from trusts and estates of deceased persons under administration) not specified in the Convention remains taxable only in the recipient’s country of residence (Article 23).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in India includes credit for tax spared under certain provisions of Indian law. In the case of dividends, the United Kingdom will give credit for the underlying tax paid in India where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 24).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26), and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax, on or after 6th April for income tax and capital gains tax and on or after 1st January in respect of petroleum revenue tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).