India–Italy 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	25 per cent of the gross amount in all cases other than the qualifying-company case — Art. 11(2)(b). This is the highest dividend ceiling in the Indian treaty network read across these four batches, and it is the default rate: any Italian resident who is not a company, and any company holding less than 10 per cent, falls into it.	Two conditions, both of which must be met, plus a third in a separate paragraph that is the one most often missed. (i) The recipient must be the beneficial owner (chapeau to Art. 11(2)). (ii) The beneficial…	Article 11, paragraph 2 and 3
Interest	15 per cent of the gross amount — but only for interest 'in respect of loans or debts', and in India's case only where those loans or debts are government-approved. Art. 12(2) read with Protocol clause (b). Outside that gateway there is no treaty ceiling at all: Art. 12(1) says in terms that interest arising in a Contracting State and paid to a resident of the other 'may be taxed in both the contracting states', and Art. 12(2) is expressed as an exception to it ('Notwithstanding the provisions of paragraph 1, the tax chargeable ... In respect of loans or debts shall not exceed 15 per cent'). This is the single most important qualifier in the treaty and the one most often truncated. The chapeau also does not require beneficial ownership — the 15 per cent applies to interest 'paid to a resident of the other Contracting State'.	The exemptions are in the article itself, at Art. 12(3), not in the Protocol. Art. 12(3)(a): interest arising in a Contracting State is exempt in that State if the payer of the interest is the government of…	Article 12, paragraph 1, 2 and 3, read with Protocol clause (b)
Royalties	20 per cent of the gross amount — a single flat ceiling for royalties and fees for technical services alike, conditional on the recipient being the beneficial owner. Art. 13(2). There is no 10 per cent tier for equipment royalties (contrast Spain, whose Art. 13(2)(i) gives 10 per cent for industrial, commercial or scientific equipment), and no split by type of royalty at all.	Art. 13(3) defines royalties in the ordinary wide form including cinematograph film, films or tapes used for radio or television broadcasting, and the equipment limb — the equipment limb is inside the…	Article 13, paragraph 2
Fees for technical services	20 per cent of the gross amount — the same tier as royalties, Art. 13(2).	Art. 13(4): 'fees for technical services' means payments of any amount to any person other than payments to an employee of the person making the payments, in consideration for the services of a managerial…	Article 13, paragraph 2 and 4

Status

In force	23 November 1995 — the Convention and its Protocol were both signed at New Delhi on 19 February 1993 and entered into force on the exchange of instruments of ratification at Rome under Art. 30(1)-(2). Effect: in India for income assessable in any previous year commencing on or after 1 April 1996; in Italy for income assessable in any taxable period commencing on or after 1 January 1996. Art. 30(3) terminates the earlier India-Italy Agreement signed at Rome on 12 January 1981 from the same moment.
Given effect by	G.S.R. 189(E), dated 25-4-1996 — issued under s.90 of the Income-tax Act 1961. There is an editorial cross-reference to the two superseded instruments: G.S.R. 608(E) dated 8-4-1986 and G.S.R. 201(E) dated 16-4-1975. This Convention covers taxes on income only — there is no capital article and no wealth-tax in Art. 2.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	None. No principal purposes test and no main-purpose test anywhere. Because there is no synthesised text for Italy in the sources used here, MLI Art. 7(1) does not appear against this Convention at all. India-Italy is therefore one of the few remaining Indian comprehensive treaties with no general anti-abuse rule on the face of the instrument — the only anti-avoidance tools are domestic (GAAR and the specific provisions of the Income-tax Act), and nothing in the treaty preserves or authorises them expressly, unlike Spain's Art. 28B(1) or Qatar's Art. 28.

Dividends

Rate	25 per cent of the gross amount in all cases other than the qualifying-company case — Art. 11(2)(b). This is the highest dividend ceiling in the Indian treaty network read across these four batches, and it is the default rate: any Italian resident who is not a company, and any company holding less than 10 per cent, falls into it.
Lower rate on a qualifying holding	15 per cent of the gross amount — Art. 11(2)(a).
The holding that unlocks it	Two conditions, both of which must be met, plus a third in a separate paragraph that is the one most often missed. (i) The recipient must be the beneficial owner (chapeau to Art. 11(2)). (ii) The beneficial owner must be A company which owns at least 10 per cent of the shares of the company paying the dividends — note it is 10 per cent of the shares, not of the capital or of the voting power. (iii) art. 11(3): 'The provisions of paragraph 2(a) would apply in respect of dividends arising out of the investment made after the date of signature of the Convention.' The 15 per cent tier is therefore closed to dividends referable to an investment made on or before 19 february 1993; those dividends bear 25 per cent however large the holding. A page that quotes '15 per cent for a 10 per cent holding' without Art. 11(3) is giving a wrong answer for legacy Italian investments in India.
Where this comes from	Article 11, paragraph 2 and 3

Art. 11(4) uses the wide continental dividend definition — shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders shares or other rights, not being debt-claims, participating in profits. Art. 11(5) is drafted unusually: where the holding is effectively connected with a PE or fixed base, paragraphs 1 and 2 do not apply and 'the dividends shall be taxable in that other Contracting State according to its own law' — the income is not routed into Article 7 or Article 15 as it is in almost every other Indian treaty, it is simply released to domestic law. The same formula appears in Art. 12(5) and Art. 13(5). Art. 11(6) is the ordinary bar on extra-territorial taxation of dividends and undistributed profits.

Interest

Rate	15 per cent of the gross amount — but only for interest 'in respect of loans or debts', and in India's case only where those loans or debts are government-approved. Art. 12(2) read with Protocol clause (b). Outside that gateway there is no treaty ceiling at all: Art. 12(1) says in terms that interest arising in a Contracting State and paid to a resident of the other 'may be taxed in both the contracting states', and Art. 12(2) is expressed as an exception to it ('Notwithstanding the provisions of paragraph 1, the tax chargeable ... In respect of loans or debts shall not exceed 15 per cent'). This is the single most important qualifier in the treaty and the one most often truncated. The chapeau also does not require beneficial ownership — the 15 per cent applies to interest 'paid to a resident of the other Contracting State'.
Exemptions	The exemptions are in the article itself, at Art. 12(3), not in the Protocol. Art. 12(3)(a): interest arising in a Contracting State is exempt in that State if the payer of the interest is the government of that Contracting State or A local authority thereof. Note the structure — this limb is payer-based, not recipient-based. It exempts interest paid by the source-State Government, whoever receives it. It is the mirror image of the ordinary treaty pattern (Spain, Netherlands, Singapore), which exempts interest derived by the other State's Government. There is no exemption in this treaty for interest received by the Italian Government or by an Italian public body as such. Art. 12(3)(b): interest is exempt if it is paid to any agency or instrumentality (including A financial institution) which may be agreed upon in this behalf by the two contracting states. This is the only recipient-based limb and it is not self-executing: no agency or institution is named in the Convention or in the Protocol, and the exemption operates only for bodies the two States have actually agreed upon. No such agreement appears in the sources used here. There is no central bank exemption. Neither the Reserve Bank of India nor the Banca d'Italia is named anywhere in Article 12 or in the Protocol. Any exemption for a central bank would have to come through the Art. 12(3)(b) agreement route. Note by contrast that Protocol clause (c) does name the Bank of Italy, but only for the purposes of the government service article (Art. 20) and remuneration of its staff — it has nothing to do with interest. Art. 12(5) disapplies paragraphs 1 and 2 on a PE or fixed-base connection, and again releases the interest to be 'taxable in that other Contracting State according to its own law'. Paragraph 3 is not among the paragraphs disapplied, so the two exemptions survive a PE connection.
Where this comes from	Article 12, paragraph 1, 2 and 3, read with Protocol clause (b)

Protocol clause (b) is the whole answer in many cases: 'that, with reference to Article 12, paragraph 2, the expression "loans or debts" means, in the case of India, loans or debts approved in this behalf by the government of india'. Interest on an unapproved Indian-source borrowing therefore has no treaty rate cap and is governed by Art. 12(1) and domestic law. Art. 12(4) defines interest as income from Government securities, bonds or debentures whether or not secured by mortgage and whether or not carrying a right to participate in profits, debt-claims of every kind, and 'all other income assimilated to income from money lent by the taxation law of the State in which the income arises' — a renvoi to source-State law that is wider than the usual formula. There is no exclusion for penalty charges for late payment. Art. 12(6) is the ordinary source rule; Art. 12(7) the special-relationship rule.

Royalties

Rate	20 per cent of the gross amount — a single flat ceiling for royalties and fees for technical services alike, conditional on the recipient being the beneficial owner. Art. 13(2). There is no 10 per cent tier for equipment royalties (contrast Spain, whose Art. 13(2)(i) gives 10 per cent for industrial, commercial or scientific equipment), and no split by type of royalty at all.
Where this comes from	Article 13, paragraph 2

Art. 13(3) defines royalties in the ordinary wide form including cinematograph film, films or tapes used for radio or television broadcasting, and the equipment limb — the equipment limb is inside the definition, it simply attracts the same 20 per cent as everything else. Art. 13(5) disapplies paras 1 and 2 on a PE or fixed-base connection and again releases the income to the other State's own law rather than routing it into Article 7. Art. 13(6) is the source rule with the PE deemed-source override; Art. 13(7) the special-relationship rule. Note: there is no Protocol gloss on Article 13 — no approval gateway of the Article 12 kind, and no review or MFN undertaking of the Spain kind.

Fees for technical services

Rate	20 per cent of the gross amount — the same tier as royalties, Art. 13(2).
Make-available requirement	No
Where this comes from	Article 13, paragraph 2 and 4

Art. 13(4): 'fees for technical services' means payments of any amount to any person other than payments to an employee of the person making the payments, in consideration for the services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. There is no make-available requirement, no ancillary-and-subsidiary-to-a-royalty limb, and no exclusion list. Two features make this definition wider than the Spain equivalent, which is otherwise its close cousin: (i) it expressly catches managerial services, tracking s.9(1)(vii) of the Income-tax Act, whereas the Spain definition is confined to technical or consultancy services; and (ii) the only carve-out is for payments to an employee — there is no exclusion for payments to an individual for independent personal services under Article 15. In the Spain treaty such payments are pushed out of FTS and into Article 15; in the Italy treaty an independent Italian consultant's fee can fall within Article 13 as well as Article 15, and the interaction is not resolved on the face of the instrument.

Capital gains on shares

Treatment	Full source taxation of all share gains, with no threshold and no asset test. Art. 14(5): '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.' Paragraph 4 covers the immovable-property-rich company (shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State). Paragraph 5 then sweeps in every other share in a resident company. So an Italian resident's gain on shares of an Indian company is taxable in India whatever the size of the holding, whatever the company owns, and whenever the shares were acquired. Art. 14(6) leaves only non-share property to residence-only taxation.
Grandfathering	None. There is no grandfathering date, no acquisition-date cut-off, no transitional rate and no limitation-of-benefits gateway attached to Article 14. Contrast the dividend article, which does carry an investment-date condition in Art. 11(3) — the drafters used one there and chose not to use one here.
Conditions	None whatever on the paragraph 5 limb. The only structural condition is that the company whose shares are alienated must be A resident of the taxing Contracting State; a gain on shares of a third-country company is not caught by paragraph 5. Paragraph 4 has no 365-day look-back (the MLI Art. 9(4) modification does not reach this treaty) and no percentage threshold — it uses the old 'consists principally of immovable property' formula tested without a stated time.
Where this comes from	Article 14, paragraph 4, 5 and 6

Permanent establishment

Construction or installation PE	More than six months — Art. 5(2)(j), covering a building site or construction, installation or assembly project or supervisory activities in connection therewith, aggregated 'together with other such sites, project or activities, if any'. Note the difference from spain: there is no 'in any twelve-month period' window here, so the six months runs on the project's own duration without a rolling reference period. The second, alternative limb in the same sub-paragraph is the qualifier that is routinely truncated: a project or supervisory activity being incidental to the sale of machinery or equipment creates a PE even where it continues for a period not exceeding six months, if the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment.
Service PE	There is no service PE limb of any kind — no day-count for the furnishing of services through employees or other personnel. But note two time-free deeming rules in Art. 5(2) that are more aggressive than any day-count: (i) sub-paragraph (i) makes 'an installation or structure used for the exploration or exploitation of natural resources' a PE with no minimum period at all (the Spain treaty imposes three months on the identical words); and (ii) the proviso to Art. 5(2) deems a PE where an enterprise 'provides services or facilities in connection with or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of mineral oils in the State' — and, unlike the Spain proviso, it carries no duration threshold whatever. The Spain version requires more than thirty days in any twelve-month period; the Italy version requires nothing. A single day of oilfield services in India creates a PE on the face of this treaty.
Agency PE	Yes, and it is four-limbed and pre-MLI — Art. 5(4): (a) habitually exercises an authority to conclude contracts, unless limited to purchasing; (b) the stock-and-delivery limb; (c) habitually secures orders in the first-mentioned State wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises under common control; and (d) in SO acting, manufactures or processes in that state for the enterprise goods or merchandise belonging to the enterprise. Limbs (c) and (d) are India-specific and have no OECD-model counterpart; limb (d) in particular converts a contract manufacturer acting on the enterprise's behalf into a PE. Art. 5(5) is the independent-agent saving with the 'devoted wholly or almost wholly' disqualifier extended to common-control groups. Art. 5(6) is the no-PE-by-control rule.
Where this comes from	Article 5

Art. 5(2) also lists (g) a warehouse in relation to a person providing storage facilities for others, and (h) 'a premises used as a sales outlet or for receiving or soliciting orders' — the order-soliciting limb is wider than the Spain equivalent, which stops at 'premises used as a sales outlet'. Most importantly, Art. 5(3) carries its own home-grown anti-fragmentation rule, drafted twenty-four years before the MLI: after listing the five specific-activity exemptions it provides that 'the provisions of sub-paragraphs (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other contracting state for any purposes other than the purposes specified in the said sub-paragraphs.' That is a blunter rule than MLI Art. 13(4): it needs no closely-related enterprise, no complementary functions and no cohesive business operation — a single other fixed place of business anywhere in India, for any non-listed purpose, destroys all five exemptions. Note also that the individual exemptions in (a) to (d) are not subject to a preparatory-or-auxiliary character requirement (only (e) carries those words), because the MLI Art. 13(2) overlay does not reach this treaty. There is no insurance PE limb.

Anti-abuse: limitation of benefits, and the MLI

LOB	None. There is no limitation-of-benefits article, no entitlement-to-benefits article, no beneficial-ownership condition outside Articles 11 to 13, no cfc saving clause and no anti-abuse article of any description. The articles were checked end to end and run article 25 non-discrimination, article 26 mutual agreement procedure, article 27 exchange of information, article 28 diplomatic and consular activities, article 29 refunds, article 30 entry into force, article 31 termination — with nothing in between and no lettered insertions. The Protocol's six clauses (a) to (f) contain no anti-abuse provision either.
PPT	None. No principal purposes test and no main-purpose test anywhere. Because there is no synthesised text for Italy in the sources used here, MLI Art. 7(1) does not appear against this Convention at all. India-Italy is therefore one of the few remaining Indian comprehensive treaties with no general anti-abuse rule on the face of the instrument — the only anti-avoidance tools are domestic (GAAR and the specific provisions of the Income-tax Act), and nothing in the treaty preserves or authorises them expressly, unlike Spain's Art. 28B(1) or Qatar's Art. 28.
Subject to tax	None.

No Synthesised Text exists for Italy. The consequence for a practitioner is that none of the MLI-derived changes that now govern the Spain, France, Netherlands, Ireland or Cyprus treaties apply here: no anti-treaty-shopping preamble, no preparatory-or-auxiliary overlay on the specific-activity exemptions, no anti-fragmentation rule, no commissionnaire rule, no 365-day look-back on immovable-property share gains, and no principal purposes test. The India-Italy Convention is read as signed.

The protocols, in order

A treaty read without its protocols is a wrong answer.

None. The whole treaty and its Protocol were scanned end to end for amendment markers — bracketed footnote numerals, 'Substituted by', 'Inserted by', 'Omitted by' — and not one was found. Every provision of the India-Italy Convention stands exactly as notified in 1996. This is the cleanest unamended treaty encountered in these four batches.
There is no amending Protocol. The only Protocol is the original one of 19 February 1993, signed with the Convention and forming an integral part of it.
No MLI modification of this treaty is established here — see synthesised_text.

The words themselves

Quoted from 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 14, paragraph 5 of the treaty as notified.

that, with reference to Article 12, paragraph 2, the expression "loans or debts" means, in the case of India, loans or debts approved in this behalf by the Government of India ;

Article Protocol, paragraph clause (b) of the treaty as notified.

The provisions of paragraph 2(a) would apply in respect of dividends arising out of the investment made after the date of signature of the Convention.

Article 11, paragraph 3 of the treaty as notified.

However, the provisions of sub-paragraphs (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purposes other than the purposes specified in the said sub-paragraphs.

Article 5, paragraph 3, closing sentence of the treaty as notified.

Items of income of a resident of a Contracting State, wherever arising, not dealt within the foregoing Articles of this Convention may be taxed in both the Contracting States.

Article 23, paragraph single unnumbered paragraph of the treaty as notified.

Provided that for the purpose of this paragraph, an enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of mineral oils in the State.

Article 5, paragraph 2, proviso of the treaty as notified.

What to watch

The article numbers are offset by one, exactly as in Spain. Dividends is Article 11, Interest Article 12, Royalties and FTS Article 13, Capital Gains Article 14, Independent Personal Services Article 15. Article 10 is Associated Enterprises and Article 4 is headed fiscal domicile, not Residence.
The interest article has two gates, not one. Article 12(1) gives an unlimited concurrent taxing right. The 15 per cent cap in Art. 12(2) is available only for interest 'in respect of loans or debts', and Protocol clause (b) narrows that, for India, to loans or debts approved by the government of india. Quoting '15 per cent' as the India-Italy interest rate without the approval condition is the single largest error risk in this treaty.
The 25 per cent dividend default is real and current. Where the Italian recipient is an individual, a partnership, a fund, or a company holding under 10 per cent of the shares, the treaty ceiling is 25 per cent — higher than India's domestic rate on dividends for most non-residents, so the treaty gives no relief at all in those cases.
Article 11(3) is A date condition, not A holding condition, and IT is easy to miss. The 15 per cent tier is confined to dividends arising out of investment made after 19 February 1993. Italian holdings in Indian companies acquired before that date never qualify.
There is no general service PE but the oilfield proviso has no time limit at all. The mineral-oils deeming proviso to Art. 5(2) creates a PE from the provision of services or facilities, or the hire of plant and machinery, used in prospecting for or extracting or producing mineral oils, with no minimum duration. So does Art. 5(2)(i) for an installation or structure used for exploration or exploitation of natural resources. Both are strictly harsher than their Spanish counterparts, which carry thirty-day and three-month thresholds respectively.
The 1993 anti-fragmentation sentence in article 5(3) is blunter than the MLI rule that replaced IT elsewhere. Any other fixed place of business in India, for any purpose outside the listed five, wipes out all five exemptions — no closely-related-enterprise test, no cohesive-business-operation test, no preparatory-or-auxiliary escape.
Agency PE limb (d) catches contract processing. 'In so acting, he manufactures or processes in that State for the enterprise goods or merchandise belonging to the enterprise' has no OECD-model equivalent and is a live exposure for Italian principals using Indian toll manufacturers who also act on their behalf.
Article 23 (other income) gives A full and unconditional source taxing right. It is a single sentence: unclassified income 'may be taxed in both the Contracting States'. There is no residence-only rule, no PE proviso and no carve-out. Anything not caught by Articles 6 to 22 is taxable in India under domestic law without any treaty limit.
Where income is effectively connected with A PE, articles 11, 12 and 13 do not route IT to article 7. Each of Art. 11(5), Art. 12(5) and Art. 13(5) says the income 'shall be taxable in that other Contracting State according to its own law'. The Article 7 attribution rules and the Protocol clause (a) expense rules are therefore not automatically engaged, and the source State's domestic characterisation governs.
Tax sparing runs both ways and has no sunset. Art. 24(4)(b) applies 'for the purposes of paragraphs 3 and 4 of this Article' — that is, to the Indian credit as well as the Italian one — and deems exempted or reduced tax on business profits, dividends, interest, royalties or FTS to have been paid. Protocol clause (d) lists the Indian provisions (ss. 10(4), 10(4A), 10(4B), 10(15)(iv), 10A, 32AB, 80HH, 80HHC, 80-I and 80U as in force at signature) with an agreed-substantially-similar extension. Unlike Spain's Art. 25(5), there is no ten-year cut-off.
The map time limit is two years, not three, and it runs from the date of the assessment or of the withholding of tax at source, whichever is the later (Art. 26(1)). Protocol clause (e) then adds a condition found in very few treaties: 'notwithstanding the remedies provided by the national laws' means the map is not alternative to the national ordinary proceedings, which 'shall be, in any case, preventively initiated' when the claim relates to an assessment not in accordance with the Convention. An Italian claimant who goes to map without first launching the domestic appeal has, on the face of the Protocol, failed a condition of access.
Article 29 (refunds) is A separate, freestanding procedural article — rare in Indian treaties. Withholding tax must be refunded on application by or on behalf of the taxpayer or by his State of residence, within the time limit fixed by the withholding State's own law, supported by a residence-State certificate that the conditions for the refund are met. Protocol clause (f) preserves the competent authorities' freedom to agree a different procedure.
The exchange-of-information article is the old narrow form. Art. 27(1) is limited to information 'necessary' for carrying out the Convention or the domestic laws concerning taxes covered by this convention, and is not restricted by Article 1 only — not by Article 2. There is no foreseeably-relevant standard, no bank-secrecy override and no assistance-in-collection article anywhere in the treaty.

What this page does not tell you. Whether the two Contracting States have ever agreed, under Art. 12(3)(b), on any agency or instrumentality (including a financial institution) whose interest receipts are exempt. No such agreement, notification or exchange of letters appears in the sources used here, so the limb cannot be shown to operate for any named body. Whether the Government of India has issued any general approval, or any class of approvals, of 'loans or debts' for the purposes of Art. 12(2) read with Protocol clause (b). The approval mechanism is stated but its administration is not evidenced in the treaty material; circulars and notifications were not searched. Whether any body has been added by mutual agreement to the Protocol clause (c) list of public institutions treated as government service for Article 20 purposes (Bank of Italy, ff.ss., pp.tt., I.C.E., E.N.I.T. And any corresponding Indian body). The MLI position of Italy. Italy is a signatory to the MLI but no synthesised text for India-Italy has been identified from the sources used here, which is consistent with the Convention not yet being a Covered Tax Agreement in force between the two. No reason is given in the sources used here, and the MLI position statements themselves were not read. The precise date on which Art. 11(3) bites — the Convention was 'signed today' at New Delhi on 19 February 1993 according to the signature block, and there is no separate signature-date recital in the Introduction, so the operative date for the investment condition is taken from the signature block. Whether the two superseded instruments cross-referenced in the footnote — G.S.R. 608(E) dated 8-4-1986 and G.S.R. 201(E) dated 16-4-1975 — remain relevant for any open period. Art. 30(3) terminates only the Agreement signed at Rome on 12 January 1981; the relationship between the 1975 and 1986 notifications and that Agreement was not established.

The India–Italy tax treaty