Background:
India had earlier signed a Double Taxation Avoidance Agreement (‘DTAA’) with Australia on 25th July 1991. Now the Government of India and Government of Australia have, on 16th December, 2011, signed a protocol amending the DTAA to facilitate better reciprocal co-operation between the two nations.
The Protocol amending the DTAA shall be effective in India in respect of income derived in any fiscal year beginning on or after 1 April next following the date on which the Protocol enters into force, which shall be provided by way of notification by India. Nevertheless, for ‘Non-discrimination’ and ‘Exchange of information’ articles, the effective date would be the date of entry into force of this protocol as notified by India.
The protocol intends to bring the existing DTAA at par with the international standards of international taxation. The key amendments brought out by this protocol are as below:
Relevant Amendments:
- Amendment to Article 3– General Definition: The protocol has inserted the definition of ‘Nationals’ by amending Article 3 of the DTAA. The term ‘National’ has been defined as any individual possessing the nationality or citizenship of respective countries and any legal person, company, partnership or association deriving its status as such from the domestic laws of respective country. It is to be noted that the term ‘National’ seems to have only been referred to in the non-discrimination article i.e. Article 24A and does not replace the definition of ‘person’ under the DTAA.
- Amendment to Article 5– Permanent Establishment (PE): The threshold limit for constituting the Service PE has been increased from 90 days in a 12 months’ period to 183 days (for same or connected projects). The same threshold will also apply to the services rendered to Associate Enterprises. Further, existing DTAA does not provide for any threshold limit for constituting PE in case of operations of substantial equipment in the exploration for or exploitation of natural resources. However, the protocol provides threshold limit of 183 days in any 12 months’ period in case of substantial operation of equipment and in other cases limit of 90 days in any 12 months’ period. This amendment should encourage cross-border movement of capital and services between the two countries.
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