INDIA: Taxation of Dividend Income of Non-Residents – Most Favored Nation Clause under Indian Tax Treaties

The court ruling reinforces importance of MFN clauses in DTAAs which, if applied judiciously, present significant opportunity of tax saving. The ruling provides credence to the application of MFN clause under DTAAs with countries such as Netherland, France, Sweden, Hungry and Switzerland enabling application of lower rate of WHT of 5% on dividend payment as against the 10% prescribed under the respective DTAAs. The MFN clause also aids in reading down the scope of certain categories of income, more specifically FTS in DTAA such as with France, Sweden, Hungry, Belgium and Spain, restricting taxability in the state of residence only in case of a permanent establishment in the country of source.

From Yatin’s Desk: Taxation of Dividend Income of Non-Residents – Most Favored Nation Clause under Indian Tax Treaties – Aureus Law Partners

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