Cabinet approves Double Taxation Avoidance Agreement between India-Chile

Union Cabinet has approved the signing of Double Taxation Avoidance Agreement (DTAA) and Protocol between Republic of India and Republic of Chile. This will help in elimination of double taxation as well as prevention of fiscal evasion and avoidance with respect to taxes on income.

Major impact of DTAA Agreement and Protocol

It will facilitate elimination of double taxation between two nations. Moreover, a clear allocation of taxing rights between Contracting States by Agreement will provide tax certainty to investors and businesses of both countries. This will also augment the flow of investment through fixing of fees for technical services, royalties and the tax rates in source State on interest.

The Agreement and Protocol implements minimum standards and other recommendations of G-20 OECD Base Erosion Profit Shifting (BEPS) Project (or BEPS Project). The Agreement includes provisions such as a Principal Purpose Test, Preamble Text, a General Anti-Abuse provision along with a Simplified Limitation of Benefits Clause (SLBC) as per BEPS Project. This will result in curbing of tax planning strategies which exploit gaps and mismatches in tax rules.

Way Forward

The Implementation Strategy and Targets includes completing necessary formalities for bringing the Agreement and Protocol into force after the Cabinet approval. Implementation would be watched and reported by Union Ministry of Finance.

Month: Current Affairs - November, 2019