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Update Of Indo-Japanese Tax Treaty To Boost India’s Software Exporters

by Lorys Charalambous, Tax-News.com, Cyprus

21 December 2004


A new tax treaty between India and Japan could boost exports of Indian software threefold to $1.5 billion in the near term, the Indian press has reported.

A senior official revealed this week in an Economic Times report that a review of the India-Japan tax treaty will take place next year, which could have the result of eliminating withholding tax on the import of software services to Japan.

It is also hoped that the renegotiation of the tax treaty will help to iron out disputes between Indian software firms and the Japanese authorities arising from the latter’s interpretation of the current treaty rules.

Currently, Japan classifies offshore income as a royalty and levies tax at a rate of 20%.

While India provides tax credits to offset taxation paid in foreign countries by Indian firms, they are notoriously difficult to obtain and the authorities only grant a credit in respect of the equivalent tax paid in India, leaving many firms out of pocket.

“Interpretation of the Indo-Japan tax treaty by the Japanese tax authorities is a big challenge to the growing business in Japan. Thus, the intervention of the Indian government in renegotiating the treaty is most welcome,” TV Mohandas Pai, CFO at IT consulting firm Infosys told the Economic Times.


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