Union Finance Minister, Shri Pranab Mukherjee made a statement in both the Houses of Parliament i.e., Lok Sabha and Rajya Sabha today on the Protocol signed between India and Switzerland yesterday to amend the existing Agreement and Protocol for Avoidance of Double Taxation with respect to Taxes on Income. Text of the statement is given below:

"Yesterday the Republic of India and the Swiss Federal Council have signed a Protocol which will amend the existing Double Taxation Avoidance Agreement between the two countries (DTAA). The amended DTAA shall come into operation after it enters into force on completion of internal process by Switzerland side.

Salient features of this Protocol are:

Article on Exchange of Information has been amended to bring it in line with international standards

· Under the current DTAA between India and Switzerland, India has not been able to obtain banking information from Switzerland. The protocol now seeks to amend the Article concerning Exchange of Information to enable exchange of such information.

· Information which is foreseeable relevant for carrying out the provisions of this agreement or to the administration or enforcement of the domestic laws concerning taxes can be exchanged under the DTAA, whereas earlier information which was relevant only for carrying out the provisions of DTAA could be exchanged.

· Information exchanged is to be used for tax purpose only. However, the new Article also provides for use of information by such other purposes which are allowed under the laws of both States and the competent authority of the supplying State authorizes such use.

· There is a specific provision to ensure that information will be exchanged even if there is no domestic interest.

· There is a specific provision for providing banking and ownership information.

· The new provision will be applicable only for prospective information and not for past information.

At present the income from international shipping are not covered under the DTAA. This is now sought to be included in the DTAA by providing for residence based taxation for shipping income from international traffic.

Our earlier treaties used to cover tax sparing provisions where if the income is exempt in one country, the other country used to provide corresponding relief even if such taxes are not paid due to exemption. However, India no longer supports this method and is moving away from profit based exemption. Tax sparing (to the extent of 10% of interest income) is currently there in the existing DTAA. Therefore, it is sought to be deleted in the Article concerning elimination of double taxation.

Article on Non-discrimination is sought to be amended to provide that difference in tax rate of resident taxpayer and Permanent Establishment of non-resident tax payer should not be more than 10%.

Recognised pension fund or scheme is included in the definition of resident to enable them to get benefit of the DTAA.

A provision for Limitation of Benefit is sought to be introduced to prevent misuse of treaty benefits on dividend, interest, royalty, fee for technical services and other income."

DSM/BY/GN-295/10 Exchange of information expanded to include banking and ownership data, with new limits on treaty benefits and shipping taxation. The Protocol amends the DTAA to expand the Exchange of Information to permit foreseeable information exchange-including banking and ownership data-and to allow use for tax purposes (and other authorised uses); it applies prospectively. It introduces residence-based taxation for international shipping income, removes specified tax-sparing relief on interest, limits tax-rate divergence between residents and non-resident permanent establishments, includes recognised pension funds as residents, and adds a Limitation of Benefit clause to prevent treaty misuse on dividends, interest, royalties and similar income.