India–Mozambique 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	7.5% of the gross amount	A single 7.5 per cent ceiling, unusually low for an Indian treaty of this period, with no qualifying-holding condition and no higher residual rate: "if the beneficial owner of the dividends is a resident of…	Article 10, paragraph 2
Interest	10% of the gross amount	Article 11(3) exempts interest from tax in the State in which it arises, provided it is derived and beneficially owned by (a) the Government, a political sub-division or a local authority of the other…	Article 11, paragraph 2
Royalties	10% of the gross amount	"if the beneficial owner of the royalties is a resident of the other Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the royalties". The definition in Article 12(3)…	Article 12, paragraph 2
Fees for technical services	—	This Agreement has no fees for technical services article and no such defined term. Article 12 is headed Royalties alone. The only route by which technical payments are taxed on a gross basis at source is…	—

Status

In force	The Agreement was "signed in India on the 30th day of September, 2010" and was "done in duplicate at New Delhi this 30th day of September 2010 each in the Hindi, Portuguese and English languages, all texts being equally authentic. In case of divergence of interpretation, the English text shall prevail." The notification recites that it "shall come into force on the 28th day of February, 2011, being the date 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 Article 30 of the said Agreement." Article 30(3)(a) fixes 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 notification states the result on its face: the provisions are given effect to in the Union of India "with effect from the 1st day of April, 2012", that is from the fiscal year 2012-13. In Mozambique the provisions have effect in respect of income derived in any fiscal year beginning on or after 1 January 2012.
Given effect by	Notification No. 30/2011-ft&tr-II, F.No. 501/152/2000-ft&tr-II, dated 31 May 2011, Ministry of Finance, Department of Revenue, headed "Section 90 of the Income-tax Act, 1961 - Double Taxation Agreement - Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Mozambique". Made in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961); the Central Government "hereby notifies that all the provisions of the said Agreement annexed hereto shall be given effect to in the Union of India with effect from the 1st day of April, 2012". The record read prints no S.O. Or G.S.R. Number for this notification.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	The primary-purpose test in Article 28 is the treaty's own purpose rule. There is no separate principal purpose test article.

Dividends

Rate	7.5% of the gross amount
Where this comes from	Article 10, paragraph 2

A single 7.5 per cent ceiling, unusually low for an Indian treaty of this period, with no qualifying-holding condition and no higher residual rate: "if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 7.5 per cent of the gross amount of the dividends". Beneficial ownership is the only condition. Paragraph 2 does not affect taxation of the company on the profits out of which the dividends are paid. The definition in paragraph 3 expressly includes "income from shares, mining shares, or other rights, not being debt-claims, participating in profits".

Interest

Rate	10% of the gross amount
Exemptions	Article 11(3) exempts interest from tax in the State in which it arises, provided it is derived and beneficially owned by (a) the Government, a political sub-division or a local authority of the other Contracting State; (b)(i) in India, the Reserve Bank of India, the Export-Import Bank of India and the National Housing Bank, and (ii) in Mozambique, the Bank of Mozambique; or (c) any other institution as may be agreed upon from time to time between the competent authorities through exchange of letters. Note that the Indian list is short — three institutions only — and does not include the development finance institutions listed in some contemporaneous Indian treaties.
Where this comes from	Article 11, paragraph 2

The ceiling is 10 per cent. The operative words in the record read are "the tax so charged shall not exceed 10% per cent of the gross amount of the interest": the text as notified carries both a per cent sign and the words "per cent", which is a slip in the printed text and not an ambiguity about the figure, the figure being 10 either way. Penalty charges for late payment are excluded from "interest" by Article 11(4).

Royalties

Rate	10% of the gross amount
Where this comes from	Article 12, paragraph 2

"if the beneficial owner of the royalties is a resident of the other Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the royalties". The definition in Article 12(3) includes equipment rental and cinematograph films or films or tapes used for television or radio broadcasting. Paragraph 1 of the Protocol extends "royalty" to remuneration for technical assistance which relates to the use of, or the right to use, the right or property referred to in Article 12(3); technical assistance untethered from such a right or property is not brought in by that paragraph.

Fees for technical services

Make-available requirement	No

This Agreement has no fees for technical services article and no such defined term. Article 12 is headed Royalties alone. The only route by which technical payments are taxed on a gross basis at source is Protocol paragraph 1, which brings within "royalty" payments "made as remuneration for technical assistance which relates to the use of or the right to use the right or property referred to in paragraph 3 of Article 12" — a nexus to the listed right or property is required. Technical, managerial or consultancy fees with no such nexus fall to Article 7 (business profits), where taxation at source requires a permanent establishment including the nine-month service PE in Article 5(3)(b), or to Article 14 (independent personal services) where the recipient is an individual, or, failing both, to Article 22 (other income), which allocates taxation exclusively to the State of residence. There is no make-available condition anywhere in the Agreement or the Protocol.

Capital gains on shares

Treatment	Source-State taxing right on share gains, not exclusive residence taxation. Article 13(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." Article 13(4) separately allows the State in which the immovable property is situated to tax gains on 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". Article 13(6) leaves gains on all other property to the alienator's State of residence alone.
Grandfathering	None. The Agreement fixes no grandfathering date and carries no acquisition-date cut-off for shares.
Conditions	Paragraph 5 turns on the company being a resident of the taxing State. Paragraph 4 turns on the composition of the company's property; unlike the Colombia agreement of the following year, "principally" is not given a numerical definition in the text of this Agreement, so the term is undefined here and Article 3(2) sends it to the domestic law of the State applying the Agreement.
Where this comes from	Article 13, paragraph 5

Permanent establishment

Construction or installation PE	12
Agency PE	Article 5(5): a dependent person is a PE if he (a) has and habitually exercises authority to conclude contracts in the name of the enterprise, (b) has no such authority but habitually maintains a stock of goods 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(7) denies independent status to an agent whose activities are devoted wholly or almost wholly on behalf of that enterprise. Article 5(6) deems an insurance PE, except for re-insurance, where premiums are collected in the other State or risks situated there are insured through a person other than an independent agent.
Where this comes from	Article 5, paragraph 3

The two thresholds in Article 5(3) are different from each other and must not be merged. Construction PE, Article 5(3)(a): a building site or construction, installation or assembly project or supervisory activities in connection therewith, "but only if such site, project or activities last more than 12 months". Service PE, Article 5(3)(b): furnishing of services including consultancy services through employees or other personnel, "but only where activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 9 months within any 12 month period". The service threshold is expressed in months, not days, so no day count is recorded here rather than converting one. There is no protocol provision aggregating the time of related enterprises, unlike the Colombia agreement.

Anti-abuse: limitation of benefits, and the MLI

LOB	Article 28, headed Limitation of Benefits, is a single paragraph: benefits are denied to a resident of a Contracting State "if its affairs were arranged in such a manner as if it was the primary purpose or one of the primary purposes was to take the benefits of this Agreement", and "the case of legal entities not having bona fide business activities shall be covered by the provisions of this Article". It is a purpose-based denial rule, not an objective LOB with ownership, base-erosion or stock-exchange tests, and it opens "Notwithstanding the provisions of any other Article of this Agreement".
PPT	The primary-purpose test in Article 28 is the treaty's own purpose rule. There is no separate principal purpose test article.
Where this comes from	Article 28

The text notified by Notification No. 30/2011-ft&tr-II on 31 May 2011 is what this page carries. Nothing in the record shows any MLI modification, and the MLI position has not been checked from this source. The benefits-limitation rule in Article 28 is a provision of the treaty as notified, not an MLI principal purpose test.

The protocols, in order

A treaty read without its protocols is a wrong answer.

A Protocol concluded the same day, 30 September 2010, is annexed to the notification and is expressed to be "an integral part of the Agreement". It has two paragraphs. First, for the purposes of Article 12, "the term 'royalty' also includes payments made as remuneration for technical assistance which relates to the use of or the right to use the right or property referred to in paragraph 3 of Article 12 of this Agreement" — this is how technical assistance enters the treaty at all, since there is no fees for technical services article. Second, for the purposes of Article 24, the non-discrimination provision does not prevent a Contracting State from charging the profits of a permanent establishment of a company of the other State at a higher rate of tax than it charges a similar domestic company, and is not in conflict with Article 7(3).
No amending notification and no later protocol appears in this record.

The words themselves

Quoted from the treaty as notified.

the tax so charged shall not exceed 7.5 per cent of the gross amount of the dividends

Article 10, paragraph 2 of the treaty as notified.

but only where activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 9 months within any 12 month period.

Article 5, paragraph 3(b) 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.

a resident of a Contracting State shall not be entitled to the benefits of this Agreement, if its affairs were arranged in such a manner as if it was the primary purpose or one of the primary purposes was to take the benefits of this Agreement.

Article 28 of the treaty as notified.

What to watch

The dividend ceiling is 7.5 per cent flat, with no holding threshold and no higher residual rate. It is lower than the 10 per cent that appears in most Indian treaties of the period, and beneficial ownership is the only condition to satisfy.
There is no fees for technical services article. Whether a technical payment can be taxed at source at 10 per cent depends entirely on Protocol paragraph 1: the technical assistance must relate to the use of, or the right to use, a right or property listed in Article 12(3). Assistance with no such nexus falls out of Article 12 and needs a permanent establishment under Article 7, a fixed base or 183 days under Article 14, or it is taxable only in the residence State under Article 22.
The service PE threshold is nine months in any twelve, while the construction threshold is twelve months. They sit in adjacent sub-paragraphs of Article 5(3) and are frequently conflated; the shorter nine-month test is what catches most services engagements.
Article 13(5) permits source taxation of gains on shares of a resident company with no grandfathering date, so shares of an Indian company sold by a Mozambican resident remain taxable in India under the treaty. Unlike the Colombia agreement, "principally" in the land-rich rule of Article 13(4) carries no stated percentage in this text.
Article 28 opens "Notwithstanding the provisions of any other Article" and denies benefits on a primary-purpose test, expressly reaching legal entities without bona fide business activities. It applies of its own force, without needing any MLI overlay.
Article 22(3) allows the source State to tax income from lotteries, crossword puzzles, races including horse races, card games, other games, gambling and betting, notwithstanding the residence-only rule in Article 22(1). Protocol paragraph 2 preserves a higher rate of tax on branch profits against a non-discrimination challenge.

What this page does not tell you. The record read is the department's own web-content copy of Notification No. 30/2011-ft&tr-II with the annexed Agreement and Protocol, printed across ten pages; it is text-bearing and legible, no line is cut off at the right margin, and no article or rate paragraph was unreadable. Two small oddities in the printed text are noted rather than corrected: the interest ceiling in Article 11(2) is printed as "10% per cent", and the record carries no S.O. Or G.S.R. Number for the notification. This page does not tell the reader whether the Multilateral Instrument has modified any provision: no MLI synthesised text was consulted, and the MLI position has not been checked from this source. Nothing here indicates any amending notification or subsequent protocol, but a nil entry in one notification is not proof that none was issued later. The Hindi and Portuguese texts, equally authentic subject to the English text prevailing on divergence, were not consulted. Domestic-law overlays that decide many real cases — surcharge and cess above the treaty rate, section 206AA, the tax residency certificate and Form 10F requirements under Rule 21AB — are outside the notification and outside this page.

The India–Mozambique tax treaty