India and South Korea on 26 October 2016 signed a revised Double Taxation Avoidance Agreement (DTAA) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
The Provisions of the new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1 April 2017.
The earlier Double Taxation Avoidance Convention between India and Korea was signed on 19 July 1985 and was notified on 26 September 1986.
Salient features of revised DTAA
• It provides for source based taxation of capital gains arising from alienation of shares comprising more than 5 percent of share capital.
• In order to promote cross border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates from 15 percent to 10 percent on fees for technical services and from 15 percent to 10 percent on interest income.
• It expands the scope of dependent agent Permanent Establishment provisions in line with India’s policy of source based taxation.
• It provides for exclusive residence based taxation of shipping income from international traffic under Article 8 of revised DTAA.
• It provides recourse to the taxpayers of both countries to apply for Mutual Agreement Procedure (MAP) in transfer pricing disputes as well as apply for bilateral Advance Pricing Agreements (APA).
• The Article on Exchange of Information is updated to the latest international standard to provide for exchange of information to the widest possible extent. As per revised Article, the country from which information is requested cannot deny the information on the ground of domestic tax interest.
• It inserts new Article for assistance in collection of taxes between tax authorities.
• It inserts new Limitation of Benefits Article i.e. anti-abuse provisions to ensure that the benefits of the Agreement are availed only by the genuine residents of both the countries.
• It aims to avoid the burden of double taxation for taxpayers of two countries in order to promote and thereby stimulate flow of investment, technology and services between India and Korea.
When: 26 October 2016