income tax

CBDT Amendment to India-Spain DTAA: Taxation Changes for Royalties and Services

Overview of CBDT Amendment to India-Spain DTAA

The Central Board of Direct Taxes (CBDT) has introduced a key amendment to paragraph 2 of Article 13 of the India-Spain Double Taxation Avoidance Agreement (DTAA), which has implications for the taxation of royalties and fees for technical services.

Amendment Details

Effective from the assessment year 2024-25, the CBDT amended paragraph 2 of Article 13 in the India-Spain DTAA. The revised text states that:

  • Royalties and fees for technical services may be taxed in the Contracting State where they are generated, following the laws of that State.
  • If the recipient is identified as the beneficial owner of these royalties or fees, the tax levied shall not exceed ten percent of the gross amount of royalties or fees for technical services.

Implications of the Amendment

This amendment is designed to enhance clarity and consistency regarding the taxation of royalties and fees for technical services between India and Spain. The implementation of a ten percent cap on tax rates for beneficial owners aims to:

  • Promote ease of conducting business.
  • Strengthen economic relations between India and Spain.

Legal Context

In compliance with the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government has mandated that all provisions of the Convention attached to the notification from the Ministry of Finance (Department of Revenue) numbered G.S.R. 356 (E), dated April 21, 1995, shall be effective in India.

Furthermore, paragraph 7 of the Protocol dated February 8, 1993, related to the aforementioned Convention, states that if India limits its source taxation on royalties or fees for technical services in any agreement with a third state member of the Organisation for Economic Co-operation and Development (OECD) after January 1, 1990, to a rate lower than that stated in this Convention, the lower rate shall apply as per that new agreement.

Notably, in the Convention between India and Germany, which took effect on October 26, 1996, the Government of India limited the taxation at source on royalties and fees for technical services to a rate lower than that in the Convention with Spain.

Conclusion

The amendment to the India-Spain DTAA underlines the commitment of both nations to improve bilateral cooperation and promote cross-border trade and investment. By streamlining the tax provisions, the amendment provides enhanced certainty for taxpayers operating in both jurisdictions, ultimately facilitating smoother business transactions.

In summary, the amended rules regarding taxation of royalties and technical service fees signify a progressive step towards fostering economic engagement between India and Spain, beginning in the assessment year 2024-25.