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The Government of India has issued a notification1 dated 14 February, 2017 giving effect to a Protocol amending the India-Israel tax treaty entered into on January 29, 1996 (hereinafter referred to as old India- Israel tax treaty/old tax treaty). The said Protocol was signed on 14 October, 2015 at Jerusalem, Israel and was entered into force on 19 December, 2016. The Protocol will have effect in India from Financial Year 2017-18.
This article discusses the key features of the said Protocol and its implications.
Analysis and discussion
As per our understanding, India has not entered into any agreement whereby the difference in the rates of tax between the PE of a foreign company and that of India is removed or reduced. Hence, the removal of this clause will not have any implications right now.
India renegotiated several treaties in the recent past and secured its right to tax capital gains sourced in India. The removal of the MFN clause from the India-Israel tax treaty is a further step to ensure that India obtains the appropriate tax on income sourced here.
The introduction of a robust LOB clause, particularly the recognition of domestic GAAR, clearly is in line with the BEPS philosophy.
Domestic law provisions in India on 'indirect transfer' provide that the share of a company will be considered to be located in India if it derives its value substantially from assets located in India. It has been explained that 'substantially' means at least 50% of the assets of the company should be located in India. The capital gain article similarly provides that capital gain on transfer of shares of a company more than 50% of whose value is derived from immovable property situated in a contracting state will be taxable in that state.
Robust EOI article reflects the contracting states' intention of ushering in better transparency and is a step towards global society.
1. Notification No. SO 441(E ) [No. 10/2017 (F No. 500/14/2004-FT-II]
2. In India tax on dividend is applicable on deemed dividend provided under section 2(22)(e )of the Income-tax Act, 1961.
3. Supreme Court in Union of India v. Azadi Bachao Andolan  263 ITR 706 (SC)
4. India and Austria signed a protocol amending the India-Austria tax treaty in February 2017. The press release to that effect provides that the protocol will broaden the scope of the existing framework of exchange of tax related information which will help curb tax evasion and tax avoidance between the two countries and will also enable mutual assistance in collection of taxes.