India–Turkmenistan 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 10 per cent cap with no qualifying-holding tier. The cap requires the recipient to be the beneficial owner. Article 10(2) adds that "The competent authorities of the Contracting States shall by mutual…	Article 10, paragraph 2
Interest	10%	Article 11(3) exempts interest at source where derived and beneficially owned by (i) the Government, a political sub-division or a local authority of the other Contracting State, or (ii) the Central Bank of…	Article 11, paragraph 2
Royalties	10%	Royalties and fees for technical services share one 10 per cent cap. The Article 12(3)(a) definition expressly names "computer software" alongside copyright of literary, artistic or scientific work including…	Article 12, paragraph 2
Fees for technical services	10%	Article 12(3)(b) defines fees for technical services as "payments of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by…	Article 12, paragraph 2

Status

In force	The Convention was signed at New Delhi on 25 February 1997 ("done in duplicate at New Delhi this 25th day of February, 1997 in the Turkmen, Hindi and English Languages, all three texts being equally authentic. In case of divergence between the texts, the English text shall be the operative one."). Entry into force is governed by Article 30(1): each State notifies the other of completion of the procedures required by its law, and the Convention "shall enter into force on the date of the later of these notifications". The notification records that the Convention "has entered into force on the seventh day of July, 1997" in accordance with Article 30. Article 30(1)(a) gives it effect in India "in respect of income or capital arising 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". Force in 1997 therefore means the fiscal year beginning 1 April 1998 (assessment year 1999-2000) is the first Indian year covered. In Turkmenistan it takes effect for fiscal years beginning on or after 1 January 1998.
Given effect by	Notification No. GSR 567(E), dated 25 September 1997, issued by the Central Government in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 44A of the Wealth-tax Act, 1957 (27 of 1957), directing that all the provisions of the annexed Convention shall be given effect to in the Union of India. The copy read carries no departmental file number. The dual statutory basis matters: this Convention covers taxes on capital as well as on income, which is why section 44A of the Wealth-tax Act is invoked alongside section 90.
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. The screens available on the face of the treaty are the beneficial-ownership requirements in Articles 10(2), 11(2) and 12(2), the special-relationship adjustments in Articles 11(7) and 12(6), the associated-enterprises rule in Article 9, and the administrative articles — Article 27 (exchange of information) and Article 28 (collection assistance).

Dividends

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

A single 10 per cent cap with no qualifying-holding tier. The cap requires the recipient to be the beneficial owner. Article 10(2) adds that "The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation" — no such mutual agreement is reproduced in the Gazette. Article 10(4) disapplies the cap where the holding is effectively connected with a PE or fixed base.

Interest

Rate	10%
Exemptions	Article 11(3) exempts interest at source where derived and beneficially owned by (i) the Government, a political sub-division or a local authority of the other Contracting State, or (ii) the Central Bank of the other Contracting State, "or any other bank that may be mutually agreed upon between the two Contracting States".
Where this comes from	Article 11, paragraph 2

The exemption list is unusually short — government and central bank only, plus whatever banks the two States later agree. There is no exemption for export-import financing, for approved loans or for government-guaranteed credit, which are the standard extra limbs in India's treaties of this period. Ordinary commercial lending pays 10 per cent. Article 11(2) also carries the same mutual-agreement clause on the mode of application of the limitation as Article 10(2).

Royalties

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

Royalties and fees for technical services share one 10 per cent cap. The Article 12(3)(a) definition expressly names "computer software" alongside copyright of literary, artistic or scientific work including cinematograph films and recordings for radio or television broadcasting, patents, trade marks, design or model, plan, secret formula or process, use of industrial, commercial or scientific equipment, and information concerning industrial, commercial or scientific experience. The express inclusion of computer software leaves little room to argue software payments outside the royalty definition under this treaty.

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 in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention". There is no make-available condition. The carve-out for Articles 14 and 15 keeps independent personal services and employment income outside the FTS article.

Capital gains on shares

Treatment	Source-State taxation of share gains is preserved. Article 13(4) allows the State where the immovable property is situated to tax gains on shares of a company whose property consists directly or indirectly principally of immovable property there. Article 13(5) is the general rule: gains from the alienation of shares other than those in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State. India may therefore tax a Turkmen resident's gain on shares in an Indian company. Only property outside paragraphs 1 to 5 is reserved to the residence State (Article 13(6)).
Grandfathering	None. The Convention contains no grandfathering date, no transitional relief and no reduced rate for shares acquired before any date.
Conditions	No shareholding threshold and no holding-period requirement.
Where this comes from	Article 13, paragraph 5

Permanent establishment

Construction or installation PE	More than six months (Article 5(3)) — a building site, a construction, assembly or installation project or supervisory activities in connection therewith
Service PE	No service PE. The Convention has no clause deeming a PE from the furnishing of services, and — unlike the Bulgaria and Morocco treaties of the same period — no mineral-oils deeming rule either. Services performed in the other State are caught only through a fixed place, the agency limb or the six-month construction site.
Agency PE	Yes. Article 5(5) deems a PE where a dependent person (a) has and habitually exercises authority to conclude contracts in the name of the enterprise, except where the activities are confined to the Article 5(4) exclusion list, or (b) has no such authority but habitually maintains a stock from which he regularly delivers goods. Article 5(6) adds an insurance PE for premium collection or insuring risks through a dependent person, except reinsurance. Article 5(7) preserves the independent-agent exception but withdraws it where the agent's activities are devoted wholly or almost wholly on behalf of that enterprise.
Where this comes from	Article 5, paragraph 3, 5

The agency limb here is narrower than in the Bulgaria treaty: there is no "habitually secures orders" sub-paragraph, so an agent who merely solicits orders without authority to conclude contracts and without maintaining a delivery stock does not create a PE. The positive list in Article 5(2) does include a sales outlet and a warehouse in relation to a person providing storage facilities for others.

Anti-abuse: limitation of benefits, and the MLI

LOB	There is no limitation of benefits article in this Convention.
PPT	There is no principal purpose test. The screens available on the face of the treaty are the beneficial-ownership requirements in Articles 10(2), 11(2) and 12(2), the special-relationship adjustments in Articles 11(7) and 12(6), the associated-enterprises rule in Article 9, and the administrative articles — Article 27 (exchange of information) and Article 28 (collection assistance).

This page carries the treaty as notified in the Gazette. The notified text shows no 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.

A Protocol was signed at New Delhi on the same day as the Convention, 25 February 1997, and is annexed to the same notification. It is expressed to "form an integral part of the Convention" and contains a single provision, with reference to Article 7. It restricts attribution of profits to a permanent establishment: where an enterprise sells goods or carries on business in the other State through a PE, the PE's profits "shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributed to the actual activity of the permanent establishment for such sales or business". It gives the worked example of contracts for survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, where the profits are determined only on the part of the contract effectively carried out by the PE in the State where the PE is situated.
No amending notification or later protocol appears on the face of this document.

The words themselves

Quoted from the treaty as notified.

The term "permanent establishment" likewise encompasses a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only when such site, project, or activities continue for a period of more than six months.

Article 5, paragraph 3 of the treaty as notified.

the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services.

Article 12, paragraph 2 of the treaty as notified.

the Central Bank of the other Contracting State, or any other bank that may be mutually agreed upon between the two Contracting States.

Article 11, paragraph 3(ii) 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.

the profits of that permanent establishment shall not be determined on the basis of the total amount received by the enterprise, but shall be determined only on the basis of the remuneration which is attributed to the actual activity of the permanent establishment for such sales or business

Article Protocol, with reference to Article 7 of the treaty as notified.

What to watch

The Protocol is the most useful page of this treaty. It is an anti-force-of-attraction rule: profits of a PE are computed on the remuneration attributable to the PE's actual activity, not on the total contract value, and the worked example is precisely the turnkey supply-and-installation contract. On a split contract for equipment supply and Indian installation, it directs attribution to the part effectively carried out by the PE in India.
There is no service PE and no mineral-oils deeming rule. Compared with India's Bulgaria and Morocco treaties of the same decade, this materially narrows the ways a Turkmen enterprise's activities in India create a taxable presence: fixed place, dependent agent, insurance, or a construction site exceeding six months.
The agency limb omits the "habitually secures orders" sub-paragraph found in several sibling treaties. Order solicitation without contract-concluding authority and without a delivery stock does not, on this text, create a PE.
Interest relief is thin. Article 11(3) exempts only government and central bank interest, plus banks the two States may later agree; there is no approved-loan or export-credit exemption, so commercial lenders face the 10 per cent cap and nothing better.
Article 12(3)(a) names computer software inside the royalty definition, so software licensing payments are royalties under this treaty on its own terms.
The Convention covers capital as well as income (Article 23), which is why the notification is issued under section 44A of the Wealth-tax Act, 1957 as well as section 90 of the Income-tax Act, 1961. Article 13(5) leaves India free to tax gains on shares of an Indian company with no threshold and no grandfathering.
Articles 10(2) and 11(2) each say the competent authorities shall by mutual agreement settle the mode of application of the rate limitation. No such agreement is reproduced in the Gazette, and the caps have been applied without one.

What this page does not tell you. This page is built from the notified Gazette text alone. The MLI position is not checked from this source and no synthesised text has been consulted. The copy read carries no departmental file number for GSR 567(E). No competent-authority agreement under Articles 10(2) or 11(2) settling the mode of application of the rate limitations, and no agreement adding a bank under Article 11(3)(ii), is reproduced or has been seen. Articles not summarised on this page — Articles 14 to 29, covering independent and dependent personal services, directors' fees, artistes and sportsmen, pensions, government service, students, professors, other income, capital, elimination of double taxation, non-discrimination, mutual agreement, exchange of information, collection assistance and diplomatic agents — were present in the file but are not reproduced here. Turkmenistan's own tax names in Article 2 are as at 1997.

The India–Turkmenistan tax treaty