New Delhi: The new India-Norway tax treaty that allows exchange of banking-related information for taxation purposes has come into force.
The earlier double taxation avoidance agreement signed in December 1986 did not provide for a specific mechanism for exchange of banking-related information between the two countries.
That agreement has now been terminated.
The new treaty, signed in February this year, will apply for income earned or capital owned on or after April 1, 2012 in the case of India.
For Norway, the new tax treaty will apply for income earned or capital owned on or after January 1 this year.
'Limitation of benefit'
Among the new features in the latest treaty is the introduction of a ‘limitation of benefit’ clause, which will ensure that corporate structures are not created primarily to get benefits available under this treaty. This will discourage ‘treaty shopping’, say tax experts. The withholding tax on dividends in the source State has also been reduced to 10 per cent.
Earlier, dividends with a shareholding of 25 per cent or more attracted tax of 15 per cent and a 25 per cent rate in other cases.
Also, the rate of tax on interest in the source State has been reduced from 15 per cent to 10 per cent.
The rate of tax on royalties and technical services arising in the source State has been specified as 10 per cent.
Natural resources
The earlier treaty considered installations or structures used in such exploration ‘permanent establishment’, implying that their incomes could be taxed. Interestingly, the new treaty has no such specific inclusion.
“This would imply that both the jurisdictions want to provide relief to foreign investors involved in exploration of natural resources in the other contracting state”, said Mr Amit Singhania, Principal Associate in law firm Amarchand & Mangaldas.
The new tax treaty also provides for significant changes to the taxation of shipping and air transport activities.
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