India gets taxation rights on investments routed via Korea; CBDT notifies revised India-Korea DTAA

The existing Double Taxation Avoidance Agreement (‘DTAA’) between India and Korea was signed on 19th July, 1985 and notified on 26th September 1986. A revised DTAA between India and Korea signed on 18th May 2015 during the visit of the Hon’ble PM to Seoul has entered into force on 12th September 2016, on completion of procedural requirements by both the countries. Provisions of new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017.

Some of the salient features of new DTAA are as under:

a) The existing DTAA provided for residence based taxation of capital gains on shares. In line with India’s policy of taxation of capital gains on shares, the revised DTAA provides for source based taxation of capital gains arising from alienation of shares comprising more than 5% of share capital.

b) In order to promote cross border flow of investments and technology, the revised DTAA provides for reduction in withholding tax rates from 15% to 10% on royalties or fees for technical services and from 15% to 10% on interest income.

c) The revised DTAA would expand the scope of dependent agent Permanent Establishment provisions in line with India’s policy of source based taxation.

d) To facilitate movement of goods through shipping between two countries and in accordance with international principles of taxation of shipping income, the revised DTAA provides for exclusive residence based taxation of shipping income from international tra􀁹ic

under Article 8 of revised DTAA.

e) The revised DTAA has inserted new Limitation of Benefits Article, i.e., anti-abuse provisions to ensure that the benefits of the Agreement are availed only by the genuine residents of both the countries.