Press Release, dated 31-7-2012

The Government of the Republic of India signed a revised Double Taxation Avoidance Agreement (DTAA) with the Government of the Republic of Indonesia for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income on 27th July, 2012 at Hyderabad House, New Delhi. Shri. S. M. Krishna, Minister for External Affairs signed the revised DTAA on behalf of India and Dr. R. M. Marty M. Natalegawa, Indonesian Foreign Minister signed on behalf of Indonesia.

The revised DTAA gives taxation rights in respect of capital gains on alienation of shares of a company to the source State. The Agreement further provides for rationalisation of the tax rates on dividend income, royalties and Fees for Technical Services in the source State up to 10% threshold limit.

The revised DTAA further incorporates provisions for effective exchange of information including banking information and sharing of information without domestic tax interest. The revised DTAA also provides for assistance in collection of taxes between tax authorities and incorporates Limitation of Benefits and anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents.

The revised DTAA will provide tax stability to the residents of India and Indonesia and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Indonesia.

 

Double taxation avoidance: revised agreement grants source-state rights on share capital gains and narrows source tax rates. The revised treaty allocates source-state taxation for capital gains on alienation of company shares, rationalises withholding tax treatment on dividends, royalties and fees for technical services at a capped rate, enhances exchange of information including banking data and sharing without domestic tax interest, provides for mutual assistance in tax collection, and incorporates Limitation of Benefits and anti-abuse provisions to ensure benefits are limited to genuine residents.