TMI BlogAgreement between the Republic of India and the Federal Republic of Germany for the Avoidance of Double Taxation with respect to taxes on income and capitalX X X X Extracts X X X X X X X X Extracts X X X X ..... PROTOCOL Amending the agreement between the Government of the Federal Republic of Germany and the Government of India for the Avoidance of Double Taxation of income signed on 18th March, 1959, the Republic of India and the Federal Republic of Germany; Desiring to amend the Agreement for the Avoidance of Double Taxation of Income signed in New Delhi on 18th March, 1959, between both States (hereinafter referred to as " The Agreement "); Have agreed as follows: ARTICLE I The title of the agreement shall be deleted and replaced by the following text: AGREEMENT BETWEEN THE REPUBLIC OF INDIA AND THE FEDERAL REPUBLIC OF GERMANY FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND CAPITAL ARTICLE II Sub-paragraphs (a) and (b) of paragraph (1) of Article I of the Agreement shall be deleted and replaced by the following text: " (a) in the Federal Republic of Germany: (i) the income-tax (Eimkommensteuer), (ii) the corporation tax (Koerperschaftsteuer), (iii) the capital tax (Vermoegensteuer), and (iv) the trade tax (Gewerbesteuer) (hereinafter referred to as " German tax "); (b) in India: (i) the income-tax including any surcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Sub-paragraph (g) of paragraph (1) of Article II of the Agreement shall be deleted and sub-paragraphs (h), (i), (j), (k) and (1) shall be renumbered as (g), (h), (i), (j) and (k), respectively. (3) Sub-paragraph (h) of paragraph (1) of Article II of the Agreement, as renumbered by paragraph (2), shall be deleted and replaced by the following text: " (h) (aa) the term ' permanent establishment ' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. (bb) the term ' permanent establishment ' includes especially: (i) a place of management; (ii) a branch; (iii) an office; (iv) a factory; (v) a workshop; (vi) a sales outlet; (vii) a warehouse; and (viii) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. (cc) A building site or construction or installation project constitutes a permanent establishment only if it lasts for more than six months. (dd) Notwithstanding the preceding provisions of this Article, the term " permanent establishment " shall be deemed not to include: (i) the use of facilities solely for the purpose of storage or display of goods or merchandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other; " (4) After sub-paragraph (k) of paragraph (1) of Article II of the Agreement, as renumbered by paragraph (2), the following new sub-paragraph (1) shall be added: " (1) the term ' fiscal year ' means: (i) in relation to Indian tax, the previous year as defined in the Income-tax Act, 1961; (ii) in relation to German tax, the calendar year. " (5) The terms " territory ", " territories ", " Federal Republic tax " and " resident of one of the territories ", wherever appearing in the Agreement, shall be replaced by the terms " Contracting State ", " Contracting States ", " German tax " and " resident of a Contracting State ", respectively. ARTICLE V Article III of the Agreement shall be deleted and replaced by the following text: (1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt: " (1) Profits derived from the operation of ships in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. (2) Notwithstanding the provisions of paragraph (1), such profits may be taxed in the other Contracting State from which they are derived provided that the tax so charged shall not exceed: (a) during the first five fiscal years after the entry into force of the Protocol signed on June 28, 1984, 50 per cent., and (b) during the subsequent five fiscal years, 25 per cent., of the tax otherwise imposed by the internal law of that State. Sub-sequently, only the provisions of paragraph (1) shall be applicable. (3) The provisions of paragraphs (1) and (2) shall also apply to profits from the participation in a pool, a joint business or an international operating agency. (4) Paragraphs (1) and (2) shall not apply to profits arising as a result of coastal traffic. The term " coastal traffic " means traffic which originates and terminates in the territorial waters of the same Contracting State. " ARTICLE VII Article VII of the Agreement shall be deleted and replaced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected with a permanent establishment situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. " ARTICLE VIII Article VIII of the Agreement shall be deleted and replaced by the following text: " (1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State. But the tax so charged on interest payable in respect of a loan given or debt created after the date of entry into force of the Protocol and signed on June 28, 1984, shall not exceed: (a) 10 per cent. of the gross amount, if such interest is paid on any loan of whatever kind granted by a bank, and (b) 15 per cent. of the gross amount in all other cases. (3) Notwithstanding the provisions of paragraph (2), (a) interest arising in the Federal Republic and paid to the Indian Government or the Reserve Bank of India shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience. (4) The term ' fees for technical services ' as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. (5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the benefical owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right, property or contract in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps and aircraft operated in international traffic and by movable property pertaining to the operation of such ships or aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. (4) Capital represented by shares in a company shall be taxable in the Contracting State in which such company is resident. (5) All other elements of capital of a resident of a Contracting State shall be taxable only in that State. " ARTICLE XII Paragraphs (2) and (3) of Article XVI of the Agreement shall be deleted and replaced by the following text: " (2) Where a resident of India derives income or owns capital which, in accordance with the provisions of this Agreement may be taxed in the Federal Republic, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the Federal Republic, whether directly or by deduction; and as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in the Federal Republic. Such deduction, in either case, shall not, however, exceed that part of the income-tax or capital tax (as computed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian tax under the laws of India and in accordance with this Agreement for any year but for an exemption from, or reduction of, tax granted for that year under: (a) sections 10(4), 10(4A), 10(15)(iv) and 80K of the Income-tax Act, 1961; (b) any other provision of similar character to be agreed between the competent authorities of both Contracting States. If this amount is less than 50 per cent. of the German tax chargeable on such income, the term " Indian tax " shall be deemed to be at least this 50 per cent. of the German tax. (d) The provisions of sub-paragraph (a) shall not apply to the profits of, and to the capital represented by, movable and immovable property forming part of the business property of a permanent establishment and to the gains from the alienation of such property; to dividends paid by, and to the shareholding in a company unless the resident of the Federal Republic concerned proves that the receipts of the permanent establishment or company are derived exclusively or almost exclusively: (aa) from producing or selling goods or merchandise, giving technical advice or rendering engineering services, or doing banking or insurance business, within Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. " ARTICLE XIV This Protocol shall also apply to Land Berlin, provided that the Government of the Federal Republic of Germany does not make a contrary declaration to the Government of India within three months of the date of entry into force of this Protocol. ARTICLE XV Sub-paragraph (a) of Article XXI of the Agreement shall be deleted and replaced by the following text: " (a) in respect of Indian tax, in relation to income and capital assessable for the assessment years commencing on or after the first day of April in the calendar year next following that in which the notice of termination is given, and " ARTICLE XVI (1) This Protocol shall be ratified and the instruments of ratification shall be exchanged at New Delhi as soon as possible. (2) This Protocol shall enter into force one month after the date of exchange of the instrument of ratification and shall have effect: (a) in the Federal Republic: (i) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January, 1984; and (ii) in respect of other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where a company being a resident of the Federal Republic distributes income derived from sources within India, sub-paragraph (a) of paragraph (3) of Article XVI of the Agreement shall not preclude the compensatory imposition of corporation tax on such distributions in accordance with the provisions of German tax law, designed to ensure the crediting of the underlying tax against the income-tax payable by the shareholder. 3. Notwithstanding the provisions of paragraph (3) of Article III of the Agreement, no deduction shall be allowed in respect of amounts paid or charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of- (a) royalties, fees or similar payments in return for the use of patents or other similar rights; (b) commission for specific services performed or for management; and (c) interest on moneys lent to the permanent establishment, except in the case of a banking institution. 4. It is understood that the deductions in respect of the head office expenses as referred to in paragraph (3) of Article III of the Agreement shall, in no case, be less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are derived from rights or debt claims carrying a right to participate in profits (including income derived by a sleeping partner from his participation as such, and in the case of the Federal Republic from a " partiarisches darlehen " and from " Gewinnobligationen "), and (b) under the condition that they are deductible in the determination of profits of the debtor of such income. 2. Where a company being a resident of the Federal Republic distributes income derived from sources within India, sub-paragraph (a) of Paragraph (3) of Article XVI of the Agreement shall not preclude the compensatory imposition of corporation tax on such distributions in accordance with the provisions of German tax law, designed to ensure the crediting of the underlying tax against the income-tax payable by the shareholder, 3. Notwithstanding the provisions of paragraph (3) of Article III of the Agreement, no deduction shall be allowed in respect of amounts paid or charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of- (a) royalties, fees or similar payments in return for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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