The Union Cabinet chaired by Prime Minister Shri Narendra Modi today approved the signing of the Double Taxation Avoidance Agreement (DTAA) and Protocol between the Republic of India and the Republic of Chile for the elimination of double taxation and the prevention of fiscal evasion and avoidance with respect to taxes on income.

Major impact:

The DTAA will facilitate elimination of double taxation. Clear allocation of taxing rights between Contracting States through the Agreement will provide tax certainty to investors & businesses of both countries while augmenting the flow of investment through fixing of tax rates in source State on interest, royalties and fees for technical services. The Agreement and Protocol implements minimum standards and other recommendations of G-20 OECD Base Erosion Profit Shifting (BEPS) Project. Inclusion of Preamble Text, a Principal Purpose Test, a general anti-abuse provision in the Agreement along with a Simplified Limitation of Benefits Clause as per BEPS Project will result in curbing of tax planning strategies which exploit gaps and mismatches in tax rules.

Implementation Strategy and Targets:

After Cabinet approval, necessary formalities for bringing the Agreement and Protocol into force will be completed. Implementation would be watched and reported by the Ministry.

Double taxation avoidance treaty incorporating BEPS standards to allocate taxing rights and curb cross-border tax abuse. Approval for a bilateral tax treaty framework between India and Chile establishes a Double Taxation Avoidance Agreement and Protocol to allocate taxing rights, fix source-State tax rates on interest, royalties and fees for technical services, and provides for implementation formalities and monitoring; the instruments incorporate BEPS minimum standards including a Principal Purpose Test, a general anti-abuse provision and a Simplified Limitation of Benefits clause to curb tax planning and prevent fiscal evasion.