Govt. Notifies Reduced Tax Rates on Royalty and FTS With Spain by Invoking MFN Clause

Notification No. 33/2024, 19-03-2024

The Ministry of Finance has issued a notification modifying the Convention between India and Spain for the avoidance of double taxation and prevention of fiscal evasion (DTAA).

Paragraph 7 of the Protocol of the DTAA consists of the most-favoured-nation (MFN) clause. The paragraph ensures that if India reduces its taxation at the source of royalties or technical service fees (FTS) in any future agreement with an OECD member country (after January 1st, 1990), the same reduced rate will automatically apply to India-Spain DTAA.

Since India agreed to lower tax rates on royalties and technical service fees in its 1996 Convention with Germany (an OECD member), the same lower rates apply to this Convention with Spain. Accordingly, the Central Government directs the substitution of paragraph 2 of Article 13 of the India-Spain DTAA.

The substituted Article 13(2) provides that the source country may tax royalties and technical service fees, but the tax charged shall not exceed 10% of the gross amount if the recipient is the beneficial owner of the royalties or fees for technical services.

Under the pre-amended Article, the cap was 10% for equipment-related royalties and 20% for FTS and other royalties.

The amended Article 13(2) of the India-Spain DTAA is effective from Assessment Year 2024-25.

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