India–Armenia tax treaty — rates, PE and MLI

The rates, at a glance

Every figure below is taken from the article named beside it, not from a rates table. Read the condition in the same row before you use the rate — in this treaty the condition is usually the whole answer.

Income	Rate	The condition attached to it	Article
Dividends	10%	A single flat ceiling. There is no qualifying-holding split and no lower rate for substantial shareholdings, which is unusual and is the point most often got wrong on this treaty. The cap applies only where…	Article 10, paragraph 2
Interest	10%	Article 11(3) exempts interest from source tax where it is derived and beneficially owned by (a) the Government, a political sub-division or a local authority of the other Contracting State; or (b)(i) in the…	Article 11, paragraph 2
Royalties	10%	Royalties and fees for technical services share one 10 per cent ceiling, so characterisation between the two does not change the rate. The Article 12(3)(a) definition covers copyright of literary, artistic or…	Article 12, paragraph 2
Fees for technical services	10%	Article 12(3)(b) defines fees for technical services as "payments of any kind, other than those mentioned in articles 14 and 15 of this Convention as consideration for managerial or technical or consultancy…	Article 12, paragraph 2

Status

In force	The Convention was signed on 31 October 2003 — "Done in duplicate on this Thirty first day of October, 2003, each in the Hindi, Armenian and English languages, all texts being equally authentic. In case of divergence of interpretation, the English text shall prevail." The notification recital in the later amending notification names the place of signature as New Delhi. Entry into force is fixed by Article 30: "This Convention shall enter into force on the date of the later of the notifications referred to in paragraph 1 of this Article." The notifying instrument records that the Convention "has come into force on the 9th day of September, 2004, on date of the later of the notifications by both the Contracting States to each other, under Article 30 of the said Convention of the completion of the procedures required by their respective laws for the entry into force of the said Convention". Article 30(3)(a) gives the Indian effect date: the provisions have effect in India "in respect of income derived in any fiscal year beginning on or after the first day of April next following the calendar year in which the Convention enters into force" — entry into force falling in calendar 2004, that is the fiscal year beginning 1 April 2005 (assessment year 2006-07). In Armenia the provisions have effect for taxes withheld at source on income derived on or after 1 January 2005 and for other taxes for tax years beginning 1 January 2005. The Convention as it now stands also carries the 2016 amending Protocol, which replaced Article 26 with effect from 14 June 2017.
Given effect by	Notification No. G.S.R. 800(E), dated 8 December 2004, made "in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961)", by which the Central Government "directs that all the provisions of the said Convention shall be given effect to in the Union of India". This is the notification of the Convention itself. It is listed on the Income Tax Department's own double-taxation search as the second Armenia record, "GSR 800(E) [08-12-2004]", alongside the 2018 protocol notification.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	There is no principal purpose test in the notified Convention. Article 28 works through objective qualified-person tests, not through a purpose enquiry.

Dividends

Rate	10%
Where this comes from	Article 10, paragraph 2

A single flat ceiling. There is no qualifying-holding split and no lower rate for substantial shareholdings, which is unusual and is the point most often got wrong on this treaty. The cap applies only where the recipient is the beneficial owner. Article 10(4) switches off paragraphs 1 and 2 where the holding is effectively connected with a permanent establishment or fixed base in the source State, in which case Article 7 or Article 14 governs.

Interest

Rate	10%
Exemptions	Article 11(3) exempts interest from source tax where it is derived and beneficially owned by (a) the Government, a political sub-division or a local authority of the other Contracting State; or (b)(i) in the case of India the Reserve Bank of India and (ii) in the case of Armenia the Central Bank of Armenia; or (c) any other institution as may be agreed upon from time to time between the competent authorities through exchange of letters.
Where this comes from	Article 11, paragraph 2

Penalty charges for late payment are excluded from "interest" by Article 11(4). The paragraph (c) gateway means the exempt list is not closed: an institution can be added by exchange of letters without amending the Convention, so the notified text is not by itself conclusive on whether a particular lender is exempt.

Royalties

Rate	10%
Where this comes from	Article 12, paragraph 2

Royalties and fees for technical services share one 10 per cent ceiling, so characterisation between the two does not change the rate. The Article 12(3)(a) definition covers copyright of literary, artistic or scientific work including cinematograph films or films or tapes used for television or radio broadcasting, patents, trade marks, designs or models, plans, secret formulae or processes, equipment rental, and information concerning industrial, commercial or scientific experience.

Fees for technical services

Rate	10%
Make-available requirement	No
Where this comes from	Article 12, paragraph 2

Article 12(3)(b) defines fees for technical services as "payments of any kind, other than those mentioned in articles 14 and 15 of this Convention as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel". There is no make-available condition anywhere in Article 12; the article is silent on it, so make_available is false rather than null. The carve-out for Articles 14 and 15 means independent personal services and employment income are taken out of Article 12 and taxed under their own rules.

Capital gains on shares

Treatment	Source-State taxation of share gains, on two limbs. Article 13(4) allows the State in which the immovable property is situated to tax gains on shares of the capital stock of, or other corporate rights in, a company whose property consists directly or indirectly principally of immovable property there. Article 13(5) allows gains on shares other than those in paragraph 4, in a company which is a resident of a Contracting State, to be taxed in that State. Article 13(6) leaves gains on all other property to residence-State taxation only.
Grandfathering	None. The notified text contains no grandfathering date and no transitional rate for shares acquired before any cut-off, unlike the reworked capital gains articles in India's Mauritius, Singapore and Cyprus treaties.
Conditions	Paragraph 5 turns only on the company being a resident of the taxing State. There is no holding threshold, no minimum period and no value test.
Where this comes from	Article 13, paragraph 5

Permanent establishment

Construction or installation PE	270 days (Article 5(3) is expressed in days, not months)
Agency PE	Article 5(5): a dependent person is a permanent establishment if he (a) has and habitually exercises authority to conclude contracts in the name of the enterprise, unless limited to the paragraph 4 preparatory or auxiliary activities; (b) has no authority to conclude contracts but habitually maintains a stock of goods or merchandise in the first-mentioned State from which he regularly delivers on behalf of the enterprise; or (c) habitually secures orders in the first-mentioned State wholly or almost wholly for the enterprise itself. Article 5(6) adds an insurance limb: an insurance enterprise, except as regards re-insurance, has a permanent establishment in the other State if it collects premiums there or insures risks situated there through a person other than an independent agent. Article 5(7) preserves independent-agent status.
Where this comes from	Article 5, paragraph 3

There is no service permanent establishment in this Convention. Article 5(3) covers a building site or construction, installation or assembly project or supervisory activities in connection therewith, and only over 270 days; the furnishing of services through personnel, which many later Indian treaties bring in as a separate limb, does not appear. Services performed in India by an Armenian enterprise therefore create no permanent establishment on a time basis alone, and payments for them fall to be tested under Article 12 or Article 14 instead.

Anti-abuse: limitation of benefits, and the MLI

LOB	Article 28 is a full limitation-of-benefits article on the qualified-person model, not a bare purpose test. Paragraph 1: a resident is entitled to benefits "only if such resident is a qualified person as defined in paragraph 2 and meets the other conditions of this Convention for the obtaining of such benefits". Paragraph 2 lists the qualified persons: an individual; a qualified governmental entity; a company whose principal class of shares is listed and regularly traded on a recognised stock exchange specified in paragraph 6, or at least 50 per cent of whose aggregate vote and value is owned directly or indirectly by five or fewer such companies (with each intermediate owner resident in either State); a charity or tax-exempt entity, with a more-than-50-per-cent resident-beneficiary test for pension trusts; and a person other than an individual meeting an ownership test on at least half the days of the fiscal year together with a base-erosion test.
PPT	There is no principal purpose test in the notified Convention. Article 28 works through objective qualified-person tests, not through a purpose enquiry.
Where this comes from	Article 28

This page carries the notified text: the Convention as notified by G.S.R. 800(E) with Article 26 as substituted by the 2016 Protocol. The Income Tax Department publishes MLI synthesised texts for some treaties on its site; no such page was found for Armenia. Nothing in the notified text shows any MLI modification, and the MLI position for this Convention has not been checked from this source.

The protocols, in order

A treaty read without its protocols is a wrong answer.

S.O. 3266(E), Notification No. 30, F. No. 503/05/1996-ftd-I, dated 5 July 2018 (Gazette of India, Extraordinary, Part II, Section 3(ii)) notified the amending Protocol signed at New Delhi on 27 January 2016. Article 1 of that Protocol provides that "The text of Article 26 (Exchange of Information) of the Convention shall be replaced by the following", and substitutes a five-paragraph exchange-of-information article on the current pattern: the foreseeable-relevance standard, exchange not restricted by Articles 1 and 2, secrecy with onward use only where both States' laws permit and the supplying State's competent authority authorises, the paragraph 4 duty to use domestic information-gathering measures even absent a domestic tax interest, and the paragraph 5 override of bank, nominee, agency, fiduciary and ownership-interest secrecy. Article 2(2) provides that "The Protocol, which shall form an integral part of the Convention, shall enter into force on the date of the later of the notifications referred to in paragraph 1 and its provisions shall have effect forthwith." The Protocol entered into force on 14 June 2017 and the notification gives its provisions effect in India from that date, with no fiscal-year lag.
The Protocol touches Article 26 alone. The distributive articles of the 2003 Convention — Articles 5, 7, 10, 11, 12, 13 — and the Article 28 limitation of benefits are unaffected and stand as originally notified. The Article 26 as originally notified used the older "as is necessary" formula; the substituted article uses "foreseeably relevant".
No other amending notification or protocol was found for this Convention on the Income Tax Department's site.

The words themselves

Quoted from the treaty as notified.

However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 10 per cent of the gross amount of the dividends.

Article 10, paragraph 2 of the treaty as notified.

A building site or construction, installation or assembly project or supervisory activities in connection therewith constitutes a permanent establishment only if such site, project or activities last more than 270 days.

Article 5, paragraph 3 of the treaty as notified.

Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State.

Article 13, paragraph 5 of the treaty as notified.

in respect of income derived in any fiscal year beginning on or after the first day of April next following the calendar year in which the Convention enters into force

Article 30, paragraph 3(a) of the treaty as notified.

The Protocol, which shall form an integral part of the Convention, shall enter into force on the date of the later of the notifications referred to in paragraph 1 and its provisions shall have effect forthwith.

Article 2 of the 2016 amending Protocol, paragraph 2 of the treaty as notified.

What to watch

The dividend ceiling is a flat 10 per cent with no parent-subsidiary rate. Do not look for a 5 per cent rate on a 10 or 25 per cent holding; there is none in Article 10.
There is no service permanent establishment. The 270-day threshold in Article 5(3) applies only to a building site or a construction, installation or assembly project and to supervisory activities connected with one. 270 days is also longer than the six or twelve months in most of India's treaties, so a project that would create a permanent establishment elsewhere may not create one here.
Article 28 is a real limitation-of-benefits article, so treaty access is a threshold question before any rate question. An Armenian holding company that is neither listed, nor owned by five or fewer listed companies, nor able to satisfy the paragraph 2(e) ownership and base-erosion tests, is outside the Convention altogether — the rates in Articles 10 to 12 never come into play.
Article 13(5) lets India tax gains on shares of an Indian company held by an Armenian resident with no threshold at all, so this treaty gives no capital gains shelter on ordinary share sales and there is no grandfathering to argue about.
Article 12 puts royalties and fees for technical services under a single 10 per cent ceiling with no make-available condition, so the make-available arguments familiar from the India-United States, India-United Kingdom and India-Singapore treaties are not available here.
For information requests, the only Article 26 that matters is the one substituted from 14 June 2017. Its paragraph 5 removes bank, nominee and fiduciary secrecy as a ground of refusal and its paragraph 4 removes the absence of a domestic tax interest; refusals given under the pre-2017 text are no guide.
Article 27 provides assistance in the collection of taxes, which is not restricted by Articles 1 and 2, so an Armenian revenue claim can be pursued in India and vice versa.

What this page does not tell you. The rates, thresholds and the limitation-of-benefits article here come from the text of the Convention as notified by G.S.R. 800(E) of 8 December 2004, read in full on the Income Tax Department's own record of that notification, and the exchange-of-information position comes from the 2016 amending Protocol as notified by S.O. 3266(E) of 5 July 2018. What this page does not do is set out Articles 6 to 9 and 14 to 25 in detail, or the paragraph 3 to 6 machinery of the Article 28 limitation of benefits, which include a derivative-benefits style test and a competent-authority discretion that a real limitation-of-benefits analysis would have to work through. The web record renders some of the source's punctuation as hyphens, so quotations here were taken only from passages free of that; the substance is unaffected. The MLI position is unchecked: no synthesised text for Armenia was found on the department's site, and the absence of a page there is not proof that the MLI does not apply. Nothing has been checked against the printed Gazette.

The India–Armenia tax treaty