Circular No. No.402/92/2006-MC (22 of 2011)

Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay

What this is

Circular No. No.402/92/2006-MC (22 of 2011) was issued by the Central Board of Direct Taxes on 8 September 2011. Its subject is Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay.

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 signing on 8 September 2011 of a Double Taxation Avoidance Agreement between India and the Oriental Republic of Uruguay on taxes on income and on capital. Business profits are taxable in the source State where the enterprise has a permanent establishment there, and a construction, assembly or installation project becomes a permanent establishment if it continues in that State for more than six months. Profits from the operation of ships or aircraft in international traffic are taxable only in the State of residence. Dividends, interest and royalties are taxable in both States, with the source State rate capped at 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 with credit in the State of residence. The agreement carries exchange of information provisions 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 to residents of both countries, facilitating economic cooperation and stimulating the flow of investment, technology and services.

Who it reaches

Indian enterprises with construction or installation projects in Uruguay
Payers of dividends, interest or royalties between the two countries
Investors selling shares of a company of the other State
Shipping and airline enterprises operating between the two countries

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.

Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay

No.402/92/2006-MC (22 of 2011)

Government of India / Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, dated the 8th September, 2011

PRESS RELEASE

The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income and on capital on 8th September, 2011. The Agreement was signed by Mr. M. C. Joshi, Chairman, Central Board of Direct Taxes on behalf of the Government of India and by Mr. Cesar Ferrer, Ambassador of Uruguay to India, on behalf of the Oriental Republic of Uruguay.

The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in that state. Such permanent establishment includes a branch, factory, 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 six 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 royalty 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 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 and tax credit will be given in the country of residence.

The Agreement further incorporates provisions for effective exchange of information including banking information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including 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 Uruguay and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Uruguay.

***

What to watch

This is a press release announcing a signing, not Board authority; the rates and articles must be taken from the agreement as notified.
A signed agreement is not in force on signature, and this text does not say from when it applies.
The six-month project threshold is shorter than in many other Indian treaties, so a short project can still create a permanent establishment.
Source State taxation of capital gains on shares here works against the seller, with relief only by way of credit in the State of residence.

Where you meet it

In deciding the withholding rate on a payment to a Uruguayan resident, or in a permanent establishment dispute over an installation project.

← Circular No. DIT(L&R)-I/NZ/SLP/393/2011/5091 · Circular No. No.402/92/2006-MC (21 of 2011) →

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.