India–Botswana 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%	Beneficial owner is a company which holds directly at least 25 per cent of the share capital of the company paying the dividends (Article 10(2)(a))	Article 10, paragraph 2(b)
Interest	10%	Article 11(3): interest is exempt in the source State if derived and beneficially owned by (i) the Government, a political sub-division or local authority of the other Contracting State; (ii) the Central Bank…	Article 11, paragraph 2
Royalties	10%	The definition in Article 12(3) covers know-how expressly and covers payments "for the use of or the right to use industrial, commercial or scientific equipment", so equipment hire falls in the royalty article…	Article 12, paragraph 2
Fees for technical services	10%	The treaty has a dedicated article headed technical fees (Article 13), separate from royalties. "Technical fees" means "payments of any kind other than those referred to in other Articles of this Agreement to…	Article 13, paragraph 2

Status

In force	Signed in India on 8 December 2006 (the testimonium reads "Done in duplicate at New Delhi, this 8th day of December, 2006 each in Hindi and English languages, both texts being equally authentic. In case of divergence of interpretation, the English text shall prevail."). Entry into force is fixed by Article 30: "The Agreement shall enter into force on the date of the later of these notifications referred in paragraph 1 of this Article." The notification records that date as 30 January 2008, "being the date of receipt of the later of the notifications after completion of the procedures as required by the respective laws for the entry into force of this Agreement, in accordance with paragraph 2 of Article 30 of the said Agreement". Effect in India runs from the fiscal year beginning 1 April 2009: Article 30(3)(b) gives 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 Agreement enters into force", and the operative direction says the provisions "shall be given effect to in the Union of India with effect from the 1st day of April, 2009". In Botswana the provisions take effect on taxable income derived on or after 1 July of the year next following entry into force (Article 30(3)(a)).
Given effect by	Notification No. 70/2008-ftd, dated 18 June 2008 [S.O. 1494(E)], issued by the Ministry of Finance, Government of India. Made "in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961)". The copy read carries the notification number and date but no separate file number on its face.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.

Dividends

Rate	10%
Lower rate on a qualifying holding	7.5%
The holding that unlocks it	Beneficial owner is a company which holds directly at least 25 per cent of the share capital of the company paying the dividends (Article 10(2)(a))
Where this comes from	Article 10, paragraph 2(b)

The 7.5 per cent rate is unusually low for an Indian treaty of this vintage. The reduced rate turns on direct holding of share capital by a company; there is no holding-period requirement. Article 10(2) closes with the standard reservation that it "shall not affect taxation of the company in respect of the profits out of which the dividends were distributed".

Interest

Rate	10%
Exemptions	Article 11(3): interest is exempt in the source State if derived and beneficially owned by (i) the Government, a political sub-division or local authority of the other Contracting State; (ii) the Central Bank of the other Contracting State; or any other bank or governmental financial institutions or agencies that may be mutually agreed upon between the two States.
Where this comes from	Article 11, paragraph 2

The third limb of the exemption is open-ended — it depends on the two States agreeing on the institution — so an exemption claim for a bank other than the central bank needs evidence of that mutual agreement. Penalty charges for late payment are excluded from the definition of interest (Article 11(4)).

Royalties

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

The definition in Article 12(3) covers know-how expressly and covers payments "for the use of or the right to use industrial, commercial or scientific equipment", so equipment hire falls in the royalty article rather than in business profits. There is no separate software limb and no make-available condition.

Fees for technical services

Rate	10%
Make-available requirement	No
Where this comes from	Article 13, paragraph 2

The treaty has a dedicated article headed technical fees (Article 13), separate from royalties. "Technical fees" means "payments of any kind other than those referred to in other Articles of this Agreement to any person, in consideration for any services of a technical, managerial or consultancy nature" (Article 13(3)). The article imposes no make-available condition and carries no exclusion for services taxed under the personal-services articles beyond the general 'other Articles' carve-out in the definition.

Capital gains on shares

Treatment	Gains from the alienation of shares of a company resident in a Contracting State may be taxed in that State — that is, source-State taxing rights over share gains are preserved. Article 14(4) separately allows the situs State to tax gains on shares of a company whose property consists directly or indirectly principally of immovable property there. Article 14(6) leaves everything else to the alienator's State of residence.
Grandfathering	None. The Agreement contains no grandfathering date for share gains.
Conditions	Article 14(5) applies to shares "other than those mentioned in paragraph 4", and taxes them in the State in which the company issuing the shares is resident.
Where this comes from	Article 14, paragraph 5

Permanent establishment

Construction or installation PE	6
Service PE	183
Agency PE	Yes, and it is wide. Article 5(5) deems a PE where a dependent person habitually exercises authority to conclude contracts in the enterprise's name, or habitually maintains a stock from which he regularly delivers, or "habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself". Article 5(6) adds an insurance PE for premium collection or insuring risks other than through an independent agent, and Article 5(7) strips independent-agent status from an agent whose activities are devoted wholly or almost wholly to one enterprise.
Where this comes from	Article 5, paragraph 3(a) construction; 3(b) services; 5 agency

Article 5(2)(i) also treats an installation or structure used for the exploration of natural resources as a PE if it continues for not less than six months, and Article 5(2)(f)-(h) list a warehouse for others, a farm or plantation, and a mine or well. The service threshold is measured over "any twelve month period commencing on or ending in the fiscal year concerned", not over the fiscal year itself.

Anti-abuse: limitation of benefits, and the MLI

Where this comes from	Article None. The Agreement as notified contains no limitation-of-benefits article and no principal purpose test. Article 27 (exchange of information) and Article 28 (collection assistance) are the only administrative anti-avoidance machinery in the text.

This page carries the treaty as notified in the Gazette in 2008. The pdf shows no MLI modification, and the MLI position for this treaty has not been checked from this source.

The protocols, in order

A treaty read without its protocols is a wrong answer.

None appear in this pdf. The notification annexes the Agreement of 8 December 2006 alone; the annexure runs from Article 1 to Article 31 and ends with the testimonium and signature block, with no Protocol printed after it and no reference in the recitals to any earlier or later amending instrument.

The words themselves

Quoted from the treaty as notified.

7.5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the share capital of the company paying dividends

Article 10, paragraph 2(a) of the treaty as notified.

The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) within the Contracting State for a period or periods aggregating more than 183 days in any twelve month period commencing on or ending in the fiscal year concerned.

Article 5, paragraph 3(b) of the treaty as notified.

The term "technical fees" as used in this Article means payments of any kind other than those referred to in other Articles of this Agreement to any person, in consideration for any services of a technical, managerial or consultancy nature.

Article 13, paragraph 3 of the treaty as notified.

Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by: (i) the Government, a political sub-division or local authority of the other Contracting State; (ii) the Central Bank of the other Contracting State; or any other bank or governmental financial institutions or agencies that may be mutually agreed upon between the two contracting-states.

Article 11, paragraph 3 of the treaty as notified.

Gains from 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 in which the company issuing shares is resident.

Article 14, paragraph 5 of the treaty as notified.

What to watch

Technical fees have their own article (Article 13) at 10 per cent, and its definition is residual — "payments of any kind other than those referred to in other Articles". So the first question on any services payment is whether it is caught by an earlier article (royalties under Article 12, independent personal services under Article 15) before Article 13 is reached.
The dividend rate splits at 7.5 per cent and 10 per cent, and 7.5 per cent is the lowest dividend rate in the Indian network of this period. The condition is a direct holding of at least 25 per cent of share capital by a company; no minimum holding period has to be shown.
Two different PE clocks sit in Article 5(3): six months for a building site, construction, assembly or installation project or supervisory activities, and 183 days in any twelve-month period for the furnishing of services. A project that mixes supervision with consultancy has to be tested against both.
Article 5(5)(c) deems a PE from habitually securing orders "wholly or almost wholly for the enterprise itself" — no contract-concluding authority is needed. That limb catches liaison and marketing arrangements that would survive the OECD-style agency test.
Article 14(5) preserves the source State's right to tax gains on shares of a resident company, without any grandfathering date, so the Agreement gives no shelter from Indian capital gains tax on Indian company shares.
Article 28 obliges each State to lend collection assistance for finally determined revenue claims, with the requesting State certifying that it has exhausted all means of recovery. That is a live exposure for a Botswana-resident debtor with Indian tax arrears.

What this page does not tell you. This page reflects one document: the 2008 notification and the Agreement annexed to it. It does not tell the reader whether any later protocol has amended the Agreement, because no such instrument is in this pdf. The MLI position has not been checked from this source. The copy read is the Income Tax Department's own printing of the notification rather than a Gazette page image, so it carries no S.O. Number on its face — the S.O. 1494(E) reference comes from the department's result card, not from the body of the document. The text was clean throughout; nothing was unreadable.

The India–Botswana tax treaty