TMI BlogAgreement for Avoidance of double taxation and prevention of fiscal evasion with foreign countries - Royal Government of BhutanX X X X Extracts X X X X X X X X Extracts X X X X ..... ement provides that the provisions of the Agreement shall have effect in India in respect of income derived in any fiscal year beginning on or after the first day of April following the calendar year in which the Agreement enters into force; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that all the provisions of said Agreement, as annexed hereto, shall be given effect to in the Union of India. [F. No. 503/4/2004-FTD-II] RAJAT BANSAL Joint Secretary to the Government of India Annexure AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE ROYAL GOVERNMENT OF BHUTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME The Government of the Republic of India and the Royal Government of Bhutan, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and with a view to promoting economic cooperation between the two countries, have agreed as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any entity that is treated as a company or body corporate for tax purposes; f) the term enterprise applies to the carrying on of any business; g) the terms enterprise of a Contracting State and enterprise of the other Contracting State mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State; h) the term international traffic means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State; i) the term competent authority means: (i) in India: the Finance Minister, Government of India, or his authorized representative; (ii) in Bhutan : the Finance Minister, Royal Government of Bhutan, or his authorized representative; j) the term national means: (i) any individual possessing the nationality of a Contracting State; (ii) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State; k) the term tax means In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a national; d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavour to settle the question by mutual Agreement. 3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which its place of effective management is situated cannot be determined, then the competent authorities of the Contracting States shall endeavour to settle the question by mutual Agreement. Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term permanent establishment includes especially: a) a place of management; b) a branch, c) an office; d) a factory; e) a workshop; f) a sales outlet; g) a warehouse in relation to a person providing storage facilities for others; h) a farm, plantation or other place where agricultural, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph, or b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, or c) habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself. 6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other Contracting State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies. 7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. Where the correct amount of profits attributable to a permanent establishment cannot be readily determined or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. The estimate adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article. 3. In determining the profits of 'a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those Articles shall not be affected by the provisions of this Article. Article 8 SHIPPING AND AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 2. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the operator of the ship is a resident. 3. Profits derived by a transportation enterprise in a Contracting State in which the place of effective management of the enterprise is situated, from the use, maintenance, or rental of containers (including trailers and other equipment for the transport of containers) used for the transport of goods or merchandise in international traffic which is supplementary or incidental to operation of its ship or aircraft in international traffic shall be taxable only in that Contracting State unless the containers are used solely within the other Contracting State. 4. For the purposes of this Article, interest on investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term dividends as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 5. Where a company which is a resident of a Contracting Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Contracting State in which the interest arises, through a permanent establishment situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated. 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the right or property in respect of which the royalties or fees for technical or professional services are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 read with Article 5 of the Agreement shall apply. 5. (a) Royalties and fees for technical or professional services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for technical or professional services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the liability to pay the royalties or fees for technical or professional services was incurred, and such royalties or fees for technical or professional services are borne by such permanent establishment, then such royalties or fees for technical or professional services shall be deemed to arise in the Contracting State in which the permanent establishment is situated. (b) Where under sub-paragraph (a) royalties or fees for technical or professional services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be taxable only in the Contracting State of which the alienator is a resident. Article 14 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of Articles 15, 17, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if. a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year or income year, as the case may be, concerned, and, b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and c) the remuneration is not borne by a permanent establishment or a fixed bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the social security system of a Contracting State or a political sub-division or a local authority thereof shall be taxable only in that State. Article 18 GOVERNMENT SERVICE 1. a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State. b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who: (i) is a national of that State; or (ii) did not become a resident of that State solely for the purpose of rendering the services. 2. a) Any pension paid by, or out of funds created by, a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State. b) However, such pension shall be taxable only in the other Contracting State if the individua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no event shall any individual have the benefits of this Article, for more than six consecutive years from the date of his first arrival for the purpose of his education or training in that other Contracting State. Article 21 OTHER INCOME 1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a contracting state not dealt within the foregoing Articles of this Agreement and arising in the other Contracting State may also be taxed in that other state. Article 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote economic development in Bhutan: (i) Education sector: An educational or vocational institute established outside Thimphu and Phuentsholing cities (with a minimum enrolment capacity of 200 students); (ii) Health sector: A high end private health service centre or hospital (with a minimum project cost of Rs/Nu 200 million). 4. Notwithstanding the provisions of paragraph 3, Bhutanese tax shall not be deemed to have been paid under that paragraph of this Article in respect of: (i) income by way of dividends, interest, capital gains or from activities not directly connected with the running of educational or vocational institute or health service centre or hospital, as the case may be; or (ii) income derived from any arrangement, entered into by an Indian resident, covered by the provisions of Article 27(Limitation of Benefits) of the Agreement. 5. The provisions of paragraph 3 shall apply for the first seven years from the date of entry into force of this Agreement. This period may be extended by mutual agreement between the competent authorities. Article 23 NON-DISCRIMINATION 1. Nationals of a Contracting State shall not be subjected in the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation or any requirement connected therewith which is other or more burdensome than the taxation and :.cnnected requirements to which other similar enterprises of the first-mentioned State are or may be subjected. 5. In this Article, the term taxation means taxes which are the subject of this Agreement. Article 24 MUTUAL AGREEMENT PROCEDURE 1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 23, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement. 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, information received by contracting states may be used for other purposes when such information may be used for such other purposes under the laws of both states and the competent authority of the supplying state authorizes such use. 3. The competent authorities shall, through consultation, develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchanges of information shall be made, including, where appropriate, exchanges of information regarding tax avoidance. 4. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; b) to supply information including documents or certified copies of the document which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate is a claim .in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other Contracting State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection. 5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 of this Article shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 of this Article shall not, in that State, have any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether or not described as such. 2. A resident of a Contracting State shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this Agreement. 3. The case of legal entities not having bonafide business activities shall be covered by the provisions of this Article. Article 28 MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS Nothing in this Agreement shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special Agreements. Article 29 ENTRY INTO FORCE 1. Each of the Contracting States shall notify to the other in writing, through diplomatic channels, the completion of the procedures required by its law for the entry into force of this Agreement. 2. This Agreement shall enter into force on the date of the later of the notifications referred to in paragraph I of this Article. 3. The provisions of this Agreement shall thereupon have effect: (a) In India, in respect of income derived in any fiscal year beginning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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