The Government of India signed here today an Agreement for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (DTAA) with Government of Albania. The Agreement was signed by Dr. Sudha Sharma, Chairperson, Central Board of Direct Taxes (CBDT), on behalf of the Government of India and Mr. Fatos Kerciku, Ambassador, Republic of Albania on behalf of the Government of Albania.

The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a Permanent Establishment (PE) in the source state. The Agreement provides for fixed place PE, building site, construction & installation PE, service PE and agency PE.

The Agreement incorporates para 2 in Article 9 concerning Associated Enterprises. This would enhance recourse to Mutual Agreement Procedure to relieve double taxation in cases involving transfer pricing adjustments.

Dividends, Interest and Royalties & Fees for Technical Services income will be taxed both in the country of residence and in the country of source. The low level of withholding rates of taxation for dividend (10%), interest (10%) and royalties & fees for technical services (10%) will promote greater investments, flow of technology and technical services between the two countries.

The Agreement further incorporates provisions for effective exchange of information between tax authorities of the two counties in line with latest international standard, including exchange of banking information and supplying of information without recourse to domestic interest.

The Agreement also contains an Article on Assistance in Collection of Taxes. This article also includes provision for taking measure of conservancy. The Agreement incorporates anti-abuse (limitation of benefits) provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

The Agreement will provide tax stability to the residents of India and Albania and will facilitate mutual economic cooperation between the two countries. It will also stimulate the flow of investment, technology and services between India and Albania.

DSM/RS/ka

(Release ID :97086)

Permanent Establishment rules determine source-state taxation and enable reduced withholding on cross-border passive income. The agreement allocates taxing rights over business profits to the source state where a Permanent Establishment exists, defines types of PE, incorporates Associated Enterprises provisions to bolster Mutual Agreement Procedure for transfer pricing adjustments, and provides reduced withholding taxation on dividends, interest, royalties and technical service fees to encourage investment. It also establishes enhanced exchange of information, including banking data, an Article on Assistance in Collection of Taxes with conservancy measures, and limitation of benefits rules to prevent treaty abuse.