Revised double tax avoidance agreement with South Korea notified
India has notified the revised double tax
avoidance agreement with South Korea under which capital gains tax will be
levied at the source with effect from April 1, 2017.
Key facts:
The revised DTAA aims to avoid the burden of
double taxation for taxpayers of two countries in order to promote and
stimulate flow of investment, technology and services between India and Korea.
- In order to promote cross-border flow of investments
and technology, the revised DTAA provides for reduction in withholding tax
rates to 10% on royalties or fees for technical services from 15% and to
10% on interest income from 15%.
- The revised DTAA provides for source-based taxation
of capital gains arising from alienation of shares comprising more than 5%
of share capital.
- The treaty also allows investors to invoke Mutual
Agreement Procedure (MAP) in transfer pricing disputes as well as apply
for bilateral Advance Pricing Agreements (APAs). It provides for exchange
of information, including by financial institutions.
- The reworked DTAA inserts new Article for assistance
in collection of taxes between tax authorities. It also inserts new
Limitation of Benefits Article i.e. anti-abuse provisions to ensure the
benefits of the agreement are availed only by the genuine residents of
both the countries.
Background:
The existing Double Taxation Avoidance
Convention, which has been in vogue for three decades, provides for
residence-based taxation of capital gains on shares, which means taxes were to
be paid where the investor was a resident.
