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India, Colombia Announce DTAA

by Leroy Baker,, New York

18 May 2011

India and Colombia have inked a Double Taxation Avoidance Agreement, designed to provide tax stability to residents, ensure mutual economic cooperation, and stimulate investment between the two countries.

The deal, agreed on May 13, was signed by India's Chairman of the Central Board of Direct Taxes, Shri Sudhir Chandra, and, on behalf of Colombia, its Ambassador to India, Juan Alfredo Pinto Saavedra.

It will, according to the Indian government, provide for the avoidance of double taxation and for the prevention of fiscal evasion with respect to income taxes.

Importantly, the agreement sets maximum rates for those withholding taxes imposed on dividends, interest and royalties.

Once the deal is implemented, the maximum rate levied on dividends will not exceed 5%. In the case of both interest and royalties, 10% is the maximum chargeable. These taxes are to be applicable in both the country of residence and in the country of source.

The DTAA's other key features are as follows:

  • Business profits are to be taxable in the source country if such a business is classified as a permanent establishment in that state;
  • Profits derived from construction, assembly or installation projects lasting at least six month will be taxed in the source state;
  • Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence;
  • Capital gains from the sale of shares will be taxable in the source country.

Provisions for the effective exchange of information and assistance in the collection of taxes between Indian and Colombian tax authorities are also provided for, in line with internationally-accepted standards. These include stipulations on the exchange of banking information and anti-abuse measures.

TAGS: tax | investment | business | double tax agreement (DTA) | India | interest | royalties | banking | Colombia | agreements | tax rates | withholding tax | dividends | construction | standards

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