India–Zambia 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	15%	Recipient is a company which owns at least 25 per cent of the shares of the company paying the dividends during the period of six months immediately preceding the date of payment of the dividends (Article…	Article 10, paragraph 2(b)
Interest	10%	Article 11(3): interest arising in a Contracting State and paid to the Government of the other Contracting State or a local authority thereof, the Central Bank of that other State, or an agency wholly owned by…	Article 11, paragraph 2
Royalties	10%	The definition in Article 12(3) covers copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, patents, trade marks, designs or…	Article 12, paragraph 2
Fees for technical services	10%	There is no article headed 'fees for technical services'. Article 14 is headed "Management and consultancy fees" and defines them as "payments of any kind to any person, other than to an employee of the person…	Article 14, paragraph 2

Status

In force	The Convention was signed at Lusaka on 5 June 1981: "done in duplicate at Lusaka this 5th day of June, 1981, in the English language." - there is only one authentic text, English. Entry into force is governed by Article 29(1): "This Convention shall come into force on the date when the list of all such things shall have been done in India and Zambia as are necessary to give the Convention the force of law in India and Zambia respectively", with the exchange of certifying diplomatic notes to take place at Lusaka (Article 29(2)). The notification does not state a calendar date of entry into force; it recites only that "all the requirements have been completed in India and Zambia as are necessary to give the said Convention the force of law" and that "the diplomatic notes to this effect have been exchanged between the said two Governments". Effect is fixed directly by Article 29(3), and it is retrospective relative to the notification: "in India, in respect of income assessable for any assessment year commencing on or after the 1st day of April, 1979", and in Zambia for charge years commencing on or after 1 April 1979. The notification, No. GSR 39(E), is dated 18 January 1984 - nearly five years after the first assessment year to which the Convention applies.
Given effect by	Notification No. GSR 39(E), dated 18 January 1984, Income Tax Department, Ministry of Finance. Made "in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964)" - the surtax power is invoked because surtax under that Act is a covered tax under Article 2(1)(a)(ii). The annexed text is described as the "text of annexed convention, dated 5-6-1981".
Modified by the MLI	No synthesised text was found for this treaty in the source searched.

Dividends

Rate	15%
Lower rate on a qualifying holding	5%
The holding that unlocks it	Recipient is a company which owns at least 25 per cent of the shares of the company paying the dividends during the period of six months immediately preceding the date of payment of the dividends (Article 10(2)(a))
Where this comes from	Article 10, paragraph 2(b)

This is one of the few Indian treaties that puts a holding period into the dividend article: the 25 per cent shareholding must be held throughout the six months immediately before the payment date. Note also that Article 10(2) limits the tax by reference to the recipient, not to a beneficial owner - the beneficial ownership language of later treaties is absent from Articles 10, 11 and 12 alike.

Interest

Rate	10%
Exemptions	Article 11(3): interest arising in a Contracting State and paid to the Government of the other Contracting State or a local authority thereof, the Central Bank of that other State, or an agency wholly owned by that Government or local authority is exempt in the source State. The competent authorities may determine by mutual agreement any other governmental institution to which the paragraph applies.
Where this comes from	Article 11, paragraph 2

The wholly-owned-agency limb is wider than the named-institution lists of later treaties: any agency wholly owned by the Government or a local authority qualifies without being named, so the test is one of ownership, provable from constitutional documents. Interest is defined in Article 11(4) by reference to government securities, bonds or debentures and other debt-claims, and includes "other income assimilated to income from money lent by the taxation law of the Contracting State in which the income arises", which imports domestic characterisation.

Royalties

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

The definition in Article 12(3) covers copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, patents, trade marks, designs or models, plans, secret formulae or processes, the use of or right to use industrial, commercial or scientific equipment, and information concerning industrial, commercial or scientific experience. There is no know-how limb named as such, no software limb, and no make-available condition.

Fees for technical services

Rate	10%
Make-available requirement	No
Where this comes from	Article 14, paragraph 2

There is no article headed 'fees for technical services'. Article 14 is headed "Management and consultancy fees" and defines them as "payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a managerial, technical or consultancy nature" (Article 14(3)). The rate cap is 10 per cent of the gross amount (Article 14(2)). The article imposes no make-available condition. Note the drafting of Article 14(2), which says such fees "may be taxed" in the source State rather than "may also be taxed", and the exclusion of payments to an employee of the payer, which routes employment income to Article 16.

Capital gains on shares

Treatment	Gains on shares are not separately dealt with. Article 13 covers immovable property (paragraph 1), permanent establishment and fixed base property (paragraph 2), and ships and aircraft in international traffic (paragraph 3); paragraph 4 then reserves everything else to the alienator's State of residence: "Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) shall be taxable only in that State." There is no land-rich share clause and no clause preserving source taxation of shares in a resident company, so gains on shares are taxable only in the alienator's State of residence.
Grandfathering	Not applicable - the Convention never gave the source State a taxing right over share gains, so there is nothing to grandfather.
Conditions	Article 13(5) defines "alienation" widely: "the sale, exchange, transfer or relinquishment of the property or the extinguishment of any rights therein or the compulsory acquisition thereof under any law in force in the respective Contracting States."
Where this comes from	Article 13, paragraph 4

Permanent establishment

Construction or installation PE	9
Agency PE	Yes, but narrow. Article 5(4) covers only two limbs: habitual exercise of authority to conclude contracts for or on behalf of the enterprise (with a carve-out where the person's activities are limited to purchasing goods for the enterprise), and habitual maintenance of a stock from which he regularly fulfils orders. There is no order-securing limb. Article 5(5) adds an insurance PE where premiums are collected or risks insured through an employee or non-independent representative, and Article 5(6) removes independent-agent status from an agent acting wholly or almost wholly for one enterprise.
Where this comes from	Article 5, paragraph 2(h) construction; 4 agency

The construction threshold is inside the inclusive list at Article 5(2)(h): a building site or construction or assembly project or supervisory activities in connection therewith, where it "continues for a period of more than 9 months". There is no service PE limb. Article 5(8) adds an unusual deemed PE: an enterprise providing the services of public entertainers or athletes in the other State has a PE there unless it is supported wholly or substantially from the public funds of its own State.

Anti-abuse: limitation of benefits, and the MLI

Where this comes from	Article None. The Convention as notified contains no limitation-of-benefits article and no principal purpose test. Article 27 (exchange of information) is the only relevant machinery, and there is no assistance-in-collection article.

This page carries the treaty as notified in 1984. 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 Convention of 5 June 1981 alone; the annexure runs from Article 1 to Article 30 and ends with the testimonium, with no Protocol printed after it and no reference in the recitals to any other instrument.

The words themselves

Quoted from the treaty as notified.

5 per cent of the gross amount of the dividends if the recipient is a company which owns at least 25 per cent of the shares of the company paying the dividends during the period of six months immediately preceding the date of payment of the dividends ;

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

The term "management and consultancy fees" as used in this article means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a managerial, technical or consultancy nature.

Article 14, paragraph 3 of the treaty as notified.

Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) shall be taxable only in that State.

Article 13, paragraph 4 of the treaty as notified.

a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than 9 months;

Article 5, paragraph 2(h) of the treaty as notified.

in India, in respect of income assessable for any assessment year commencing on or after the 1st day of April, 1979.

Article 29, paragraph 3(a) of the treaty as notified.

What to watch

Gains on shares are taxable only in the alienator's State of residence. Article 13 has no land-rich clause and no clause preserving source taxation of shares in a resident company, so the residual rule in Article 13(4) governs - a materially different result from the Indian treaties of the 1990s and 2000s, which routinely keep source rights over share gains.
There is no fees-for-technical-services article. Article 14 covers "management and consultancy fees" at 10 per cent, and its definition expressly excludes payments to an employee of the payer. Payments that are neither royalties under Article 12 nor management or consultancy fees under Article 14 fall to Article 7 (business profits) or Article 15 (independent personal services), and are then taxable at source only through a PE or fixed base.
The 5 per cent dividend rate requires the 25 per cent shareholding to have been held throughout the six months immediately preceding the payment date. A holding acquired shortly before a dividend does not qualify, and the holding period has to be evidenced.
Articles 10, 11 and 12 cap the source tax by reference to the "recipient", not to a "beneficial owner". The beneficial ownership condition that carries so much weight in later treaties is simply not in this text.
The interest exemption in Article 11(3) turns on ownership, not on being named: any agency wholly owned by the Government or a local authority of the other State qualifies, alongside the Government itself and the central bank.
Article 5(8) deems a PE where an enterprise supplies the services of public entertainers or athletes in the other State, unless it is supported wholly or substantially from its home State's public funds. That is a trap for tour and event promoters that has no counterpart in most Indian treaties.
The Convention takes effect in India for assessment years commencing on or after 1 April 1979, although the notification is dated 18 January 1984. The notification itself never states a calendar date of entry into force.

What this page does not tell you. The notification does not state the date on which the Convention entered into force. Article 29 makes entry into force depend on the completion of domestic requirements and on an exchange of diplomatic notes at Lusaka, and the notification recites only that both have happened; no calendar date appears anywhere in this pdf. What is fixed is the date from which the Convention has effect - assessment years commencing on or after 1 April 1979. The page also does not tell the reader whether any later protocol has amended the Convention, because none is in this pdf, and the MLI position has not been checked from this source. The copy read is the Income Tax Department's own printing rather than a Gazette page image. Articles 15 to 28 were skimmed rather than read closely. The source contains obvious typographic slips (for instance "a warehouse or other facilities for the maintenance of a stock of goods or mechanised belonging to the enterprise" in Article 5(2)(i), and a reference in the recitals to "paragraph (2) of article 20" where Article 29(2) is plainly meant); these are noted rather than corrected.

The India–Zambia tax treaty