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India and France have signed a key protocol amending their 1992 tax treaty, reshaping capital gains, dividend taxation and information-sharing rules. The move aims to end MFN disputes and boost cross-border investment flows.
India and France have signed a protocol to amend the existing Double Taxation Avoidance Convention
New Delhi: India and France have signed a protocol to amend the existing Double Taxation Avoidance Convention (DTAC), marking a significant step in strengthening bilateral tax cooperation. The agreement was formalised during the recent visit of the French President to India.
The protocol was signed by Ravi Agrawal, Chairperson of the Central Board of Direct Taxes (CBDT), on behalf of the Government of India, and Thierry Mathou, Ambassador of France to India, representing the French Republic.
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One of the major amendments grants full taxing rights on capital gains arising from the sale of shares to the country where the company is resident. This provision clarifies tax jurisdiction and is expected to reduce ambiguity in cross-border transactions.
The protocol also removes the Most-Favoured-Nation (MFN) clause from the earlier agreement, effectively settling long-standing interpretational disputes related to its application.
Dividend taxation rules have been revised as well. The earlier uniform tax rate of 10 per cent has been replaced with a two-tier structure: a reduced 5 per cent rate for shareholders holding at least 10 per cent equity, and 15 per cent in other cases.
The amended agreement updates the definition of “Fees for Technical Services” to align it with provisions in the India-US tax treaty. It also broadens the concept of Permanent Establishment by introducing a Service PE clause, expanding the scope for taxation in certain service-related scenarios.
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Further, the protocol strengthens Exchange of Information provisions and introduces a new article on Assistance in Collection of Taxes. These changes are aimed at improving transparency and cooperation in line with global standards.
The agreement also incorporates relevant provisions of the Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI), which both countries have ratified.
The amendments will take effect after completion of domestic legal procedures in both countries. Officials said the updated treaty framework is designed to provide greater certainty to taxpayers while encouraging investment, technology exchange and economic collaboration between India and France.
