Press Release, dated 31-7-2012 — India Signs Revised DTAA with Indonesia for the Avoidance of Double Taxation and for the P

What this is

Press Release, dated 31-7-2012 was issued by the Central Board of Direct Taxes on 31 July 2012. Its subject is India Signs Revised DTAA with Indonesia for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with Respect to Taxes on Income.

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

Records that India and Indonesia signed a revised double taxation avoidance agreement on 27 July 2012 at New Delhi. The revised agreement gives taxing rights over capital gains on alienation of shares of a company to the source State, and caps the source State rate on dividends, royalties and fees for technical services at 10 per cent. It carries provisions for effective exchange of information including banking information and sharing of information without a domestic tax interest, assistance in collection of taxes between the tax authorities, and limitation of benefits and anti-abuse provisions so that only genuine residents get the treaty's benefits.

Why it was issued

The two Governments revised the existing agreement to provide tax stability to residents of both countries and to encourage the flow of investment, technology and services between them.

Who it reaches

Indian companies and residents with Indonesian income or operations
Indonesian investors holding shares in Indian companies
Payers of royalties and fees for technical services across the two countries
Persons facing recovery of tax through the assistance in collection article

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.

India Signs Revised DTAA with Indonesia for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with Respect to Taxes on Income
Press Release, dated 31-7-2012
The Government of the Republic of India signed a revised Double Taxation Avoidance Agreement (DTAA) with the Government of the Republic of Indonesia for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on 27th July, 2012 at Hyderabad House, New Delhi. Shri. S. M. Krishna, Minister for External Affairs signed the revised DTAA on behalf of India and Dr. R. M. Marty M. Natalegawa, Indonesian Foreign Minister signed on behalf of Indonesia.
The revised DTAA gives taxation rights in respect of capital gains on alienation of shares of a company to the source State. The Agreement further provides for rationalisation of the tax rates on dividend income, royalties and Fees for Technical Services in the source State up to 10% threshold limit.
The revised DTAA further incorporates provisions for effective exchange of information including banking information and sharing of information without domestic tax interest. The revised DTAA also provides for assistance in collection of taxes between tax authorities and incorporates Limitation of Benefits and anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents.
The revised DTAA will provide tax stability to the residents of India and Indonesia and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Indonesia.
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What to watch

Source State taxation of gains on shares is a significant shift; a shareholding structured on the older position needs re-examination.
The 10 per cent ceiling on dividends, royalties and fees for technical services is a source State cap under the treaty, not automatically the rate to be applied without meeting the treaty's own conditions.
Limitation of benefits and anti-abuse provisions mean residence certificates and substance will be tested.
This is a press release about signing; a treaty operates from the date it enters into force and is notified, which this release does not state.

Where you meet it

At the withholding stage on a payment to an Indonesian resident, and in a claim of treaty relief on capital gains from the sale of shares.

← Circular No. 05/2012 · Press Release, dated 31-7-2012 →

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.