India–Sudan 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% of the gross amount	A single 10 per cent ceiling, with no qualifying-holding condition and no higher residual rate: "but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed 10 per cent of…	Article 10, paragraph 2
Interest	10% of the gross amount	Article 11(3) exempts interest or gains from tax in the State in which they arise, provided they are derived and beneficially owned by (a) the Government, a political sub-division or a local authority of the…	Article 11, paragraph 2
Royalties	10% of the gross amount	Article 12 covers royalties and fees for technical services together under one 10 per cent ceiling, conditioned on the beneficial owner being a resident of the other Contracting State. The royalty definition…	Article 12, paragraph 2
Fees for technical services	10% of the gross amount	Article 12(3)(b): "The term 'fees for technical services' as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial…	Article 12, paragraph 2

Status

In force	The Agreement was "done in duplicate at Khartoum this twenty-second day of October two thousand and three, each in the Hindi, Arabic and English languages, all texts being equally authentic. In case of divergence of interpretation, the English text shall prevail." The notification recites that it "has come into force on the 15th day of April, 2004 on the date of receipt of the later of the notifications by both the Contracting States to each other, under Article 29 of the said Agreement of the completion of the procedures required by the respective laws for the entry into force of this Agreement." Article 29(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". Entry into force falling in calendar 2004, the Indian fiscal year from which the provisions have effect is the year beginning 1 April 2005, that is fiscal year 2005-06. In the Sudan the provisions have effect in respect of income derived in any fiscal year beginning on or after 1 January 2005. The treaty names the counterparty as the Republic of the Sudan throughout.
Given effect by	Notification No. GSR 723(E), dated 1 November 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 "hereby directs that all the provisions of the said Agreement shall be given effect to in the Union of India". The Agreement text follows under the heading annexure. The record read prints no departmental file number and no S.O. Number beyond GSR 723(E) and its date.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	None. The Agreement contains no principal purpose or main purpose test. The available anti-avoidance tools are Article 9 (associated enterprises), Article 26 (exchange of information) and Article 27 (collection assistance), together with the beneficial-ownership conditions in Articles 10, 11 and 12.

Dividends

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

A single 10 per cent ceiling, with no qualifying-holding condition and no higher residual rate: "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". Note the drafting — the condition is framed as the recipient being the beneficial owner rather than the beneficial owner being a resident of the other State, which is the more usual formulation and the one used in Article 12 of this same Agreement. Paragraph 2 does not affect taxation of the company on the profits out of which the dividends are paid. Paragraph 4, which disapplies the reduced rate where the holding is effectively connected with a PE or fixed base, cross-refers in the printed text to "Article 7 or Article 17"; the parallel paragraphs in Articles 11 and 12 of the same Agreement refer to "Article 7 or Article 14", and Article 14 is the independent personal services article while Article 17 is artistes and sportspersons.

Interest

Rate	10% of the gross amount
Exemptions	Article 11(3) exempts interest or gains from tax in the State in which they arise, provided they are 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 Industrial Finance Corporation of India, the Industrial Development Bank of India, the Export-Import Bank of India, the National Housing Bank, the Small Industries Development Bank of India and the Industrial Credit and Investment Corporation of India (icici), and (ii) in the Sudan, the Bank of Sudan and the Sudanese Development Corporation; or (c) any other institution as may be agreed upon from time to time between the competent authorities through exchange of letters. This is a long institutional list by Indian treaty standards and is the answer to most real questions on Indian-sourced interest under this treaty.
Where this comes from	Article 11, paragraph 2

Article 11 is headed "interest or gains", not simply Interest, and the compound expression "interest or gains" is used consistently through all seven paragraphs, including the defined term in paragraph 4: "The term 'interest or gains' as used in this Article means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures." The definition is confined to income from debt claims; the word "gains" does not extend the article to capital gains, which have their own article. Penalty charges for late payment are excluded.

Royalties

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

Article 12 covers royalties and fees for technical services together under one 10 per cent ceiling, conditioned on the beneficial owner being a resident of the other Contracting State. The royalty definition in Article 12(3)(a) includes equipment rental and cinematograph films or films or tapes used for television or radio broadcasting.

Fees for technical services

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

Article 12(3)(b): "The term 'fees for technical services' as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement 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: the article does not require that technology, knowledge, skill or know-how be made available to the payer. The definition expressly reaches the provision of services of technical or other personnel, so secondment-style arrangements are within it, and it carves out only payments dealt with by Article 14 (independent personal services) and Article 15 (dependent personal services).

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; "principally" is not given a numerical definition in this text, so Article 3(2) sends the term to the domestic law of the State applying the Agreement.
Where this comes from	Article 13, paragraph 5

Permanent establishment

Construction or installation PE	6
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, (c) habitually secures orders in the first-mentioned State wholly or almost wholly for the enterprise itself, or (d) "in so acting, he manufactures or processes in that Contracting State goods and merchandise on behalf of the enterprise". The manufacturing or processing limb in (d) is an additional Indian-style limb not found in the OECD model. 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 or risks situated in the other State are insured through a person other than an independent agent.
Where this comes from	Article 5, paragraph 3

Construction PE only: Article 5(3), "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 six months." There is no service PE provision in this Agreement — no sub-paragraph on the furnishing of services through employees or other personnel — so no day or month count exists for services, and a services provider without a fixed place of business is not caught by Article 5 at all. That gap is filled economically by the fees for technical services rule in Article 12, which taxes such payments at source on a gross basis whether or not there is any PE. Note also that Article 5(4)(a) and (b) include delivery in the preparatory-or-auxiliary exclusions, which is the older OECD formulation.

Anti-abuse: limitation of benefits, and the MLI

LOB	None. The Agreement contains no limitation of benefits article. The articles run from 1 to 30 with Article 28 being members of diplomatic missions and consular posts, Article 29 entry into force and Article 30 termination; there is no bona fide business activities test anywhere in the text.
PPT	None. The Agreement contains no principal purpose or main purpose test. The available anti-avoidance tools are Article 9 (associated enterprises), Article 26 (exchange of information) and Article 27 (collection assistance), together with the beneficial-ownership conditions in Articles 10, 11 and 12.

The text notified by GSR 723(E) on 1 November 2004 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 protocols, in order

A treaty read without its protocols is a wrong answer.

No protocol is annexed to this notification, and no amending notification appears in the record read. The Agreement is carried as a single text signed at Khartoum on 22 October 2003.

The words themselves

Quoted from the treaty as notified.

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.

The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.

Article 12, paragraph 3(b) 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 six months.

Article 5, paragraph 3 of the treaty as notified.

in so acting, he manufactures or processes in that Contracting State goods and merchandise on behalf of the enterprise

Article 5, paragraph 5(d) 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.

What to watch

Everything passive is 10 per cent: dividends under Article 10(2), interest or gains under Article 11(2), and royalties and fees for technical services together under Article 12(2). There is no holding threshold and no split rate anywhere, so the rate is rarely the issue; characterisation and the Article 11(3) exemptions are.
The FTS definition has no make-available condition and expressly includes the provision of services of technical or other personnel. A secondment or deputation charge is within Article 12 and taxable at source at 10 per cent gross even with no permanent establishment, subject only to the Articles 14 and 15 carve-out.
There is no service PE in Article 5. The only time threshold is six months for a building site, construction, installation or assembly project or supervisory activities. Do not look for a services day count in this treaty; it does not have one.
The agency limb in Article 5(5)(d) treats a person who manufactures or processes goods in the State on behalf of the enterprise as a permanent establishment. That limb is easily overlooked and can create a PE from contract-manufacturing arrangements that would be outside the OECD-model agency rule.
Article 11 is headed "Interest or Gains" and uses that compound term throughout, but paragraph 4 defines it by reference to income from debt claims. The heading does not pull capital gains into Article 11; those are governed by Article 13.
Article 11(3)(b)(i) lists seven Indian institutions whose interest is exempt at source, including RBI, exim Bank, idbi, ifci, nhb, sidbi and icici. On Indian-sourced interest paid to a Sudanese lender, and on Sudan-sourced interest received by these Indian institutions, that exemption rather than the 10 per cent rate is usually the operative provision.
Article 10(4) as printed cross-refers to "Article 7 or Article 17" where the corresponding paragraphs of Articles 11 and 12 refer to "Article 7 or Article 14". Anyone relying on the effectively-connected carve-out in the dividend article should read the printed text closely and be aware of the discrepancy.

What this page does not tell you. The record read is the department's own web-content copy of Notification GSR 723(E) with the annexed Agreement, printed across nine 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 features of the printed text are reported as printed rather than corrected: Article 10(4) cross-refers to "Article 7 or Article 17" where the parallel paragraphs elsewhere in the Agreement refer to Article 14, and the record carries no file number or S.O. Number beyond GSR 723(E). 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. No protocol is annexed, and this page cannot say whether any protocol or amending notification was issued after 2004 — only that none appears in this record. The Agreement was concluded with the Republic of the Sudan in 2003 and this page says nothing about its application following the secession of South Sudan in 2011, which is a question of treaty succession outside the notification. The Hindi and Arabic texts, equally authentic subject to the English text prevailing on divergence, were not consulted. Domestic-law overlays — surcharge and cess above the treaty rate, section 206AA, and the tax residency certificate and Form 10F requirements under Rule 21AB — are outside the notification and outside this page.

The India–Sudan tax treaty