Press Information Bureau

Government of India

Ministry of Finance

08-September-2011 18:09 IST

India Signs DTAA with Uruguay; Agreement will Provide Tax Stability to the Residents of both Countries, Facilitate Mutual Economic Cooperation and Stimulate the Flow of Investment, Technology and Services .

The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income and on capital on 8th September, 2011. The Agreement was signed by Mr. M. C. Joshi, Chairman, Central Board of Direct Taxes on behalf of the Government of India and by Mr. Cesar Ferrer, Ambassador of Uruguay to India, on behalf of the Oriental Republic of Uruguay.

The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in that state. Such permanent establishment includes a branch, factory, etc. Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for more than six months.

Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalty income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 5% in the case of dividends and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source and tax credit will be given in the country of residence.

The Agreement further incorporates provisions for effective exchange of information including banking information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including anti-abuse 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 Uruguay and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Uruguay.

DSM/SS/SL

Double taxation avoidance: treaty allocates source and residence taxing rights and limits source withholding to specified caps. The DTAA between India and Uruguay allocates taxing rights: business profits taxable in the source state when activities constitute a permanent establishment (including branches and projects over six months); shipping and air transport profits taxable in the residence state; dividends, interest and royalties taxable in both states with source withholding caps (5% for dividends, 10% for interest and royalties); capital gains on shares taxable in source with residence tax credit. The Agreement also provides for exchange of information, assistance in tax collection and anti-abuse measures to secure benefits for genuine residents.