Union Finance Minister, Shri Pranab Mukherjee and Norwegian Minister of Research and Higher Education, Ms Tora Aasland signed an agreement, here today for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital (DTAA). This will replace the existing Convention signed between the two countries on the same subject on 31^st December 1986.  Speaking on the occasion, Union Finance Minister, Shri Pranab Mukherjee said that it is a matter of happiness that the two countries have signed the revised agreement for the avoidance of double taxation and avoidance of fiscal avoidance after 25 years.  He hoped that this will bring out more transparency and openness in both taxation and fiscal matters.  Ms. Tora Aasland, Norwegian Minister of Research and Higher Education said that India and Norway have good relations not only in the field of financial matters but also with regard to climate change, water resources and research among others. 

            Both India and Norway have renegotiated the new Agreement The renegotiated DTAA was approved by the Cabinet in its meeting held on 20^th October, 2010.  The new DTAA will replace the existing DTAC upon entering into force.

            The salient features of the renegotiated DTAA are:

(i)                 In the Article concerning “Residence”, the new DTAA allow the place of effective management of an entity to be determined through Mutual Agreement Procedure in case it can not be determined otherwise. This provision is not there in existing DTAC.

(ii)               New DTAA also has provision for insurance PE which was not in existing DTAC.

(iii)             The Article on “Associated Enterprise” in the new DTAA has paragraph 2, which is not in the existing DTAC. This paragraph will enable us to resolve Transfer Pricing cases under Mutual Agreement Procedure.

(iv)             The new DTAA provide for lesser rate of taxation of dividend and interest in the source country. It provides for 10% rate as against 15% or 25% in existing DTAC.

(v)               New DTAA has removed limited tax sparring contained in the Article on “Method for Elimination of Double Taxation”. This is in line with our new tax policy.

(vi)             The new DTAA has an article on exchange of Information which specifically provide for exchange of banking information and information without domestic interest. These two paragraphs (paragraphs 4 and 5) are missing in the existing DTAC. Hence, the new DTAA which contains these paragraphs is in line with the international standards.

(vii)           The new DTAA has an article on Limitation of Benefit which is not in existing DTAC. This will prevent misuse of DTAA.

Reduced withholding rates and strengthened exchange of information under the revised double taxation agreement prevent treaty misuse. The revised agreement replaces the prior Convention and: permits determination of an entity's place of effective management via Mutual Agreement Procedure; creates an insurance permanent establishment; expands the Associated Enterprises provision to resolve transfer pricing disputes through Mutual Agreement Procedure; reduces source-state withholding rates on dividends and interest; removes limited tax sparing; adds an exchange of information article including banking information and broader information exchange; and introduces a Limitation of Benefit clause to prevent treaty misuse.