India Singapore Tax Treaty
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Flash News Protocol to India-Singapore DTAA 5 July 2005 © 2005 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. 1 FLASH NEWS Protocol amending the Double Taxation Avoidance Agreement between India and Singapore The Comprehensive Economic Cooperation Agreement (CECA) signed on 29 June 2005 between the Government of India and Government of Singapore had mentioned that both Governments would amend the Double Taxation Avoidance Agreement between India and Singapore (DTAA). The Government of India and the Government of Singapore have signed a Protocol on 29 June 2005 amending the DTAA between India-Singapore. The Protocol will come into force from 1 August 2005. The salient features of these amendments are as follows: Royalties and Fees for Technical Services The tax rate in respect of Royalties and Fees for Technical Services arising in one of the two countries and payable to a resident of the other country shall not exceed 10 per cent. This brings the withholding tax rate for Royalties and Fees for Technical Services in line with the recently amended Indian domestic tax law provisions. Capital Gains Capital Gains arising to a resident of one of the two countries from alienation of any property (including shares) in the other country (other than immoveable property or property forming part of a permanent establishment or the permanent establishment itself) would be taxed only in the country where the alienator is a resident. Thus, if a resident of Singapore were to sell shares of an Indian Company to a resident of India, the capital gains arising from such sale would be taxed only in Singapore. This is subject to the Limitation of Benefits (LOB) provisions given below. Limitation on Benefits The Protocol has a LOB provision, to prevent abuse of the favourable capital gains tax treatment mentioned above. The LOB provision states as follows: - A tax resident of either of the countries will not be entitled to the favourable capital gains tax treatment if its affairs are arranged primarily to take advantage of the benefits of the said favourable tax treatment. - A shell/conduit company (i.e. a company being a resident of a Contracting State with negligible or nil business operations or with no real and continuous business activities in the Resident State) will not be eligible for the favourable capital gains tax treatment. A Company would not be a shell/conduit company if: - It is listed on the recognized stock exchange of the Contracting State; or
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Transcript of India Singapore Tax Treaty
Flash News
Protocol to India-Singapore DTAA 5 July 2005
© 2005 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. 1
FLASH NEWS
Protocol amending the Double Taxation Avoidance Agreement between India and Singapore The Comprehensive Economic Cooperation Agreement (CECA) signed on 29 June 2005 between the Government of India and Government of Singapore had mentioned that both Governments would amend the Double Taxation Avoidance Agreement between India and Singapore (DTAA). The Government of India and the Government of Singapore have signed a Protocol on 29 June 2005 amending the DTAA between India-Singapore. The Protocol will come into force from 1 August 2005. The salient features of these amendments are as follows: Royalties and Fees for Technical Services
The tax rate in respect of Royalties and Fees for Technical Services arising in one of the two countries and payable to a resident of the other country shall not exceed 10 per cent.
This brings the withholding tax rate for Royalties and Fees for Technical Services in line
with the recently amended Indian domestic tax law provisions. Capital Gains
Capital Gains arising to a resident of one of the two countries from alienation of any property (including shares) in the other country (other than immoveable property or property forming part of a permanent establishment or the permanent establishment itself) would be taxed only in the country where the alienator is a resident.
Thus, if a resident of Singapore were to sell shares of an Indian Company to a resident of
India, the capital gains arising from such sale would be taxed only in Singapore. This is subject to the Limitation of Benefits (LOB) provisions given below.
Limitation on Benefits
The Protocol has a LOB provision, to prevent abuse of the favourable capital gains tax treatment mentioned above. The LOB provision states as follows:
- A tax resident of either of the countries will not be entitled to the favourable capital gains
tax treatment if its affairs are arranged primarily to take advantage of the benefits of the said favourable tax treatment.
- A shell/conduit company (i.e. a company being a resident of a Contracting State with negligible or nil business operations or with no real and continuous business activities in the Resident State) will not be eligible for the favourable capital gains tax treatment.
A Company would not be a shell/conduit company if:
- It is listed on the recognized stock exchange of the Contracting State; or
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Protocol to India-Singapore DTAA 5 July 2005
© 2005 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. 2
- Its total annual expenditure1 on operations in that Contracting State is equal to or more than S$ 200,000 or INR 50,00,000 in the respective Contracting State as the case may be, in immediately preceding period of 24 months from the date the gains arise i.e. the date of alienation.
Exchange of Information
The Protocol provides that on a request of one of the countries, the Revenue Authority of
the other country shall collect and share all information with the other country that it is competent to obtain for its own purposes under its law. This Exchange of Information would be done through the Competent Authority of the other country.
The Protocol provides that the above amendments relating to Capital Gains, LOB and Exchange of Information shall remain in force as long as any Convention/DTAA between India and Mauritius provides that any gains from the alienation of shares in a company which is a resident of either India or Mauritius shall be taxable only in the country in which the alienator (transferor) is a resident. LOB Article in India-USA DTAA v LOB Provisions in this Protocol The LOB Article2 in the India-USA DTAA denies relief to a resident of either India or USA (other than an Individual) in respect of any income covered by the India-USA DTAA derived from the other country whereas the LOB provision in this Protocol denies relief only in respect of capital gains as specified above. The criterion for applying the LOB provisions differs in India-USA DTAA and this Protocol. In the India-USA DTAA the application of the LOB Article depends upon a certain specified percentage (direct or indirect) of the ownership of the entity claiming the relief and the usage of the income of that entity. In this Protocol however, the application of the LOB provision depends on the arrangement of affairs of the entity claiming treaty relief in respect of capital gains and whether a shell/conduit company is claiming this relief. The LOB provision in the India-USA DTAA does not deny relief to a company in whose principal class of shares there is substantial and regular trading on a recognized stock exchange of one of the two countries whereas this Protocol does not regard a company as a shell/conduit company if such company is listed on the recognized stock exchange of either India or Singapore or; if it has incurred a certain specified amount of annual expenditure in immediately preceding period of 24 months from the date the gains arise. The LOB provisions in the India-USA DTAA may not apply to a person if the Competent Authority of the State in which the income arises so determines whereas this Protocol does not provide as such.
1 The term ‘annual expenditure’ means an expenditure incurred during a period of 12 months. The period of 24 months shall be calculated by referring to two blocks of 12 months immediately preceding the date when the gains arise. 2 Article 24 of India-USA DTAA
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Protocol to India-Singapore DTAA 5 July 2005
© 2005 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. 3
Disclaimer
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
