Circular No. No.402/92/2006-MC (12 of 2011)

Highlights of notified DTAA between India and Mozambique

What this is

Circular No. No.402/92/2006-MC (12 of 2011) was issued by the Central Board of Direct Taxes on 1 June 2011. Its subject is Highlights of notified DTAA between India and Mozambique.

This one is about a tax treaty. India’s treaties enter Indian law by notification under section 90; where the instrument below is that notification, its date decides from when the treaty may be applied, and where it is a circular, it is the Board telling its officers how it reads the treaty — which is not the same thing.

What it does

Announces the notification on 31 May 2011 of the double taxation avoidance agreement with Mozambique. Business profits are taxable in the source State where the enterprise has a permanent establishment, examples given being a branch, factory, office or place of management, and a construction, assembly or installation project becomes taxable in the source State if it continues there for more than twelve months. Profits from operation of ships or aircraft in international traffic are taxable in the State of residence. Dividends, interest and royalties are taxed in both States, with the source State rate capped at 7.5 per cent for dividends and 10 per cent for interest and royalties. Capital gains on the sale of shares are taxable in the source State. The agreement carries exchange of information including banking information, assistance in collection of taxes, and anti-abuse provisions.

Why it was issued

The release presents the agreement as providing tax stability, facilitating economic cooperation and stimulating the flow of investment, technology and services between the two countries.

Who it reaches

Indian enterprises with projects in Mozambique
Payers of dividends, interest or royalties between the two countries
Investors selling shares of a company of the other State

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Highlights of notified DTAA between India and Mozambique

No.402/92/2006-MC (12 of 2011)

Government of India / Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi dated the 1st June, 2011

PRESS RELEASE

The Government of India notified the Double Taxation Avoidance Agreement (DTAA) with the Government of Mozambique for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on 31st May, 2011.

The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in the source state. Examples of permanent establishment include a branch, factory, office, place of management, etc. Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for more than 12 months.

Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalties income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 7.5% in the case of dividends and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source.

The Agreement further incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including exchange of banking information and incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

The Agreement will provide tax stability to the residents of India and Mozambique and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Mozambique.

What to watch

This is a press release summarising a notified agreement, not Board authority; the rates and articles must be taken from the notification.
Unlike a signing announcement, this one records that the agreement stands notified as on 31 May 2011, though the years from which it applies are not stated here.
The twelve month project threshold is the general one, so a shorter project does not create a permanent establishment on that ground alone.
Source State taxation of capital gains on shares works against the seller, and the release does not say what relief the residence State gives.

Where you meet it

In fixing a withholding rate on a payment to a Mozambican resident, or on a permanent establishment question about a project executed there.

← Circular No. No.402/92/2006-MC (13 of 2011) · Letter [F.No.7/4/2008-NS.II] →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.