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India Signs DTAA With Luxembourg

by Ulrika Lomas,, Brussels

04 June 2008

It was announced on Monday that the government of India has signed a Double Taxation Avoidance Agreement (DTAA) with the Luxembourg government, covering the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital.

This Agreement will enter into force on a date to be notified in due course, and also aims at promoting economic cooperation between the two countries.

It was signed by R.S. Mathoda, Chairman of the Central Board of Direct Taxes on behalf of the Government of India, and Ambassador Marc Courte on behalf of the Government of Grand Duchy of Luxembourg.

The DTAA between India and Luxembourg will in the case of India, cover income-tax and wealth tax including any surcharge thereon. In the case of Luxembourg, it will cover income tax on individuals, corporation tax, capital tax, and the communal trade tax.

The DTAA also addresses the tax treatment of dividend, interest, royalties and fees for technical services-both in the country of residence as well as the country of source.

However, the rate of tax in the country of source shall not exceed 10% of the gross amount of payment where the beneficial owner of the payments is a resident of the other contracting state.

In a statement, the Indian Finance Ministry further revealed that:

"The DTAA provides that capital gains from alienation of shares of a company shall be taxable in the country where the company is a resident. The incidence of double taxation shall be avoided by one country giving credit for taxes paid by its residents in the other country."

"There is a provision for exchange of information in cases, which are under investigation in either of the two countries. Both the countries shall assist each other in collection of revenue claims. There is also a provision for limitation of benefits under the DTAA to prevent misuse of the provisions of the DTAA."

It concluded:

"The Agreement will further stimulate the flow of capital, technology and personnel between the two countries. It will also contribute to the tax stability and facilitate mutual cooperation."

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