DTAA India and Spain – FTS Rate changed to 10% only

DTAA India and Spain – FTS Rate changed to 10% only

DTAA India and Spain – FTS Rate changed to 10% only

Good News. Indian Government modifies Article 13 of DTAA for FTS.

This is relating to Royalties and Fees for Technical Services with Spain

The Central Government has modified the Article 13 of Double Taxation Avoidance Agreement ( DTAA )  relating to the royalties and fees for technical services with Spain by invoking Section 90 of the Income Tax Act, 1961.

Tax rate has been cut on FTS to 10%. ( from old DTAA rate 20%)

 

The DTAA amendment, is effective from the assessment year 2024-25. ( FY 23-24 )

Under the newly amended provision, royalties and fees for technical services, while being subject to taxation in the Contracting State where they arise and in accordance with its laws, will now carry a Max tax rate of 10% instead of 20% earlier.

 

Old para was

However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services the tax so charged shall not exceed :

(i) in the case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment, 10 per cent of the gross amount of the royalties;
(ii) in the case of fees for technical services and other royalties, 20 per cent of the gross amount of fees for technical services or royalties.

 

and new para is

“2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed ten per cent of the gross amount of royalties or fees for technical services.”

This has been notified on 19-3-2024, Wednesday.

The Government of India (GoI) has issued Notification No. 33/2024 dated 19 March 2024 (Notification), by exercising its powers under the Indian Tax Laws (ITL), conferring lower tax rate benefit of 10% under the India-Spain Double Taxation Avoidance Agreement (DTAA) in accordance with the most favored nation (MFN).

Source 1: https://studycafe.in/cbdt-amends-fts-clause-in-india-spain-dtaa-298852.html

Source 2 : https://www.taxmann.com/research/income-tax/top-story/104010000000106534/govt-notifies-reduced-tax-rates-on-royalty-and-fts-with-spain-by-invoking-mfn-clause-cirnot


So, now it is flat rate : 10% for all FTS

There is no change in the Personal independent services by Artists, Teachers etc ( That is Article 15 )

 

The paragraph 2 of Article 13 of the said Convention, as amended by this notification, shall be applicable with effect from the assessment year 2024-25.

 

Why is this Good News ? for whom ?

This is Nice for Indian companies with consultants in Spain. This reduces the cost. ( if the consultant pushes for grossing up).

 


Questions to be solved 

  1. Whether Income tax return to be filed by that Entity in India ? Yes.
  2. As per the current law, income tax return is exempt, if Full Normal TDS rate is applied and deducted.
  3. if an entity takes the benefit of DTAA, then it has to compulsarily file its ITR in India.
  4. What will be the income shown in that ITR ? If an entity takes the benefit of DTAA, then it has to compulsarily file its ITR in India.
  5. What about PAN in India ? That is also required
  6. What about 10F online filing in India ? Yes Required
  7. Can a 10F be filed now ? Yes
  8. but this 10F will help in the past 11 month transactions ??? To be discussed.

Source of Government Notification : https://incometaxindia.gov.in/communications/notification/notification-33-2024.pdf

 

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