The Double Tax Avoidance Agreement (DTAA) between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland is a crucial framework aimed at preventing double taxation and fiscal evasion concerning taxes on income and capital gains. Here, we delve into key aspects outlined in the agreement:

Scope of the Convention (Article 1): The DTAA applies to individuals who are residents of either or both Contracting States. It covers the territories of both countries, including their territorial sea and areas of the exclusive economic zone or continental shelf.

Taxes Covered (Article 2): The Convention addresses various taxes, including income tax, corporation tax, capital gains tax, and petroleum revenue tax in the United Kingdom, and income tax with surcharge in India. It also extends to similar taxes introduced after the agreement’s signing.

Residence and Permanent Establishment (Articles 4 and 5): Determining residence involves considering factors like domicile, place of management, or habitual abode. For individuals with dual residency, rules specify criteria for resolution. Permanent establishment, a crucial concept, includes fixed places of business and various specific locations where business activities are conducted.

Income from Immovable Property and Business Profits (Articles 6 and 7): Article 6 allows the taxation of income from immovable property in the Contracting State where the property is situated. Article 7 outlines the taxation of business profits, emphasizing taxation in the State where the enterprise operates unless it has a permanent establishment in the other State.

Expanding on Permanent Establishment (Article 5): The definition of permanent establishment is extensive, encompassing places of management, branches, offices, factories, and more. Exclusions exist for certain activities of a preparatory or auxiliary character, such as storage, display, or advertising.

Attribution of Profits to Permanent Establishment (Article 7): Profits attributable to a permanent establishment are determined by considering the activities it engages in, especially in negotiating, concluding, or fulfilling contracts. The article provides a framework for the allocation of profits based on the contribution of the permanent establishment to business transactions.

Deductions and Limitations (Article 7): While determining profits, the agreement allows deductions for expenses incurred for the permanent establishment’s business purposes. However, specific restrictions apply, especially concerning executive and general administrative expenses.

Non-Attribution of Profits for Certain Transactions (Article 7): The agreement specifies scenarios where profits are not attributed to a permanent establishment, including amounts paid for the use of patents or rights, commissions, or interest on monies lent.

Air Transport (Article 8):

This article governs the tax treatment of international air transport profits and participation in pools by enterprises. It defines “operation of aircraft” and addresses gains from the sale of aircraft.

Shipping (Article 9):

Article 9 deals with the taxation of income from international ship operations, including exceptions for domestic journeys. It covers income from ship rentals, containers, and applies to participation in pools. Gains from ship or container sales are taxed in the seller’s State.

Associated Enterprises (Article 10):

Article 10 outlines conditions for taxing profits in associated enterprises. It allows adjustments by the other State for already taxed profits, preventing profit shifting.

Dividends (Article 11):

This article covers the taxation of dividends between Contracting States, providing exemptions, credits, and rules for certain cases, including those with permanent establishments.

Interest (Article 12):

Article 12 addresses the taxation of interest, specifying maximum rates, exceptions, and provisions for special cases like banks and export credits. It defines “interest” and includes anti-abuse measures.

Royalties and Fees for Technical Services (Article 13):

Article 13 governs the taxation of royalties and fees for technical services. It establishes maximum rates, defines terms, and includes provisions for permanent establishments, source determination, and anti-abuse measures.

Capital Gains (ARTICLE 14):

This article allows each Contracting State to tax capital gains according to its domestic law, with exceptions for air transport and shipping covered in Articles 8 and 9.

Independent Personal Services (ARTICLE 15):

Article 15 covers the taxation of income from professional services or similar independent activities. It provides conditions for taxation in the Contracting State where services are performed.

Dependent Personal Services (ARTICLE 16):

This article governs the taxation of salaries and similar remuneration derived from employment. It establishes rules for taxation in the Contracting State where employment is exercised.

Directors’ Fees (ARTICLE 17):

Directors’ fees and similar payments to residents serving on the board of a company in the other Contracting State may be taxed in that State, according to Article 17.

Artistes and Athletes (ARTICLE 18):

Article 18 addresses the taxation of income derived by entertainers or athletes from personal activities. It allows taxation in the Contracting State where these activities are performed.

Teachers (ARTICLE 22):

Teachers visiting a Contracting State for up to two years for teaching or research are exempt from tax in that State, according to Article 22. This exemption applies to income from research in the public interest.

Other Income (ARTICLE 23):

Article 23 covers items of income owned by a resident, taxable only in the resident’s State unless connected to a permanent establishment or fixed base in the other Contracting State.

Elimination of Double Taxation (ARTICLE 24):

This article addresses the elimination of double taxation. It allows tax credits for taxes paid in one Contracting State against tax liabilities in the other.

Partnerships (ARTICLE 25):

Article 25 clarifies that a partnership’s entitlement to tax exemption in one State doesn’t restrict the right of the other State to tax individual members on their share of income or gains.

Termination (ARTICLE 31):

The Convention remains in force until terminated by either Contracting State. Termination requires a six-month notice and affects tax years beginning after the specified periods in the United Kingdom and India.

Conclusion: The DTAA between India and the UK outlines comprehensive provisions to avoid double taxation and prevent fiscal evasion. Understanding the key articles related to residence, permanent establishment, and profit attribution is essential for individuals and enterprises engaged in cross-border activities between these two nations.