India, France Amend Double Taxation Pact During French President’s Visit

During the recent visit of the President of France to India, the two countries signed a protocol amending the India–France Double Taxation Avoidance Convention (DTAC), originally signed on 29 September 1992.

Key Changes in the Amending Protocol

• Capital Gains Taxation: Full taxing rights on capital gains from sale of shares will now go to the country where the company is resident.

• Removal of MFN Clause: The protocol removes the Most-Favoured-Nation (MFN) clause, resolving long-standing interpretational disputes.

• Dividend Tax Changes: Old single rate of 10% replaced with: 5% for shareholders holding ≥10% capital, and 15% for others

• Fees for Technical Services: Definition aligned with the India–US Double Taxation Avoidance Agreement.

• Permanent Establishment Expansion: Introduction of Service Permanent Establishment (PE) provisions.

• BEPS Compliance: Incorporates relevant provisions of the Base Erosion and Profit Shifting framework into the treaty.

What Is BEPS?

• Base Erosion and Profit Shifting (BEPS) refers to strategies used by multinational firms to shift profits to low-tax jurisdictions.

• Although BEPS affects all countries, developing economies suffer disproportionately from the practice due to their heavy reliance on corporate income tax, particularly from multinational enterprises.

The Organisation for Economic Co-operation and Development (OECD) / G20 BEPS Project includes:

• 15-point action plan to curb tax avoidance
• Ensures profits are taxed where economic activity occurs
• Pillar One: reallocates taxing rights of large MNEs
• Pillar Two: introduces 15% global minimum corporate tax

Over 140 countries participate in the BEPS Inclusive Framework.

Why It Matters

• Updates the tax treaty to modern global standards
• Prevents tax avoidance by multinational companies
• Provides clarity on capital gains and dividends
• Strengthens India–France economic cooperation

Sources: PIB & OECD