The Government of India on 18 September 2013 signed an agreement with Latvia on Double Tax Avoidance Agreement (DTAA) and the Prevention of Fiscal Evasion with respect to Taxes on Income.
The Agreement and the Agreed Note were signed by Salman Khurshid, External Affairs Minister of India and Mr. Edgars Rinkevics, Minister of Foreign Affairs of Latvia.
Latvia is the third Baltic country with which DTAA has been signed by India. Earlier DTAAs were signed with Lithuania and Estonia.
The DTAA provides that business profits will be taxable in the source if the activities of an enterprise constitute a permanent establishment (PE) in the source state. The Agreement provides for fixed place of permanent establishment (PE), building site, construction or assembly PE, service PE, Off-shore exploration/exploitation PE and agency PE.
Double Tax Avoidance Agreement contains following provisions
• Dividends, interest and royalties and fees for technical services income will be taxed both in the country of residence and in the country of source. The low level of withholding rates of taxation for dividend, interest and royalties and fees for technical services (10 percent) will promote greater investments, flow of technology and technical services between India and Latvia.
• The Agreement incorporates provisions for effective exchange of information between tax authorities of the two countries in line with latest international standards, including exchange of banking information and supplying of information without recourse to domestic interest.
• The Agreement included an article on assistance in collection of taxes. This article also included provision for taking measures of conservancy .The Agreement incorporates anti-abuse (limitation of benefits) provisions to ensure that the benefits of the Agreements are availed of by the genuine residents of India and Latvia.
• The Agreement will provide tax stability to the residents of India and Latvia. It will also facilitate mutual economic cooperation between India and Latvia.
About Double Tax Avoidance Agreement (DTAA)
Double Tax Avoidance Agreement (DTAA) is a bilateral agreement between two countries. The main objective of DTAA is to avoid taxation of income in both countries (means double taxation of same income).