India and France Amend DTAA: Removes MFN Clause

The President of France recently visited India. During this visit, India and France signed an agreement to change some rules in the India-France Double Taxation Avoidance Convention, which was originally signed on September 29, 1992. The new amendment was signed by Ravi Agrawal from India and Thierry Mathou from France on behalf of their governments.

One important change is about the capital gains tax on shares of a company. Now, the country where the company is located will have full rights to tax those profits. Another change removes the Most-Favoured-Nation (MFN) clause, which had created confusion in the past. Removing it makes the tax rules clearer and avoids disputes between the two countries.

The agreement also changes how dividends are taxed. Earlier, there was a single 10% tax rate. Now there are two rates:

• 5% tax if the investor owns at least 10% of the company’s shares
• 15% tax for investors who own less than 10%

The definition of Fees for Technical Services (FTS) has also been updated. It is now similar to the definition used in the India–USA double taxation avoidance, which helps maintain consistency across agreements and expands the meaning of Permanent Establishment (PE) by adding something called Service PE.

The Amending Protocol makes some important improvements to how India and France work together on tax matters. The protocol also updates the rules for sharing financial information between the two countries and adds a new provision that allows them to help each other collect taxes when needed. These changes follow international standards and will make cooperation between the two countries smoother and more effective. The protocol also includes certain rules from the global BEPS Multilateral Instrument (MLI), which both countries have already agreed to, to prevent tax avoidance.

The changes in the protocol will only start applying after both India and France complete their internal legal procedures and formally approve the agreement, according to the terms decided between them.

The updated agreement brings the India-France tax treaty in line with the latest global standards while protecting the interests of both countries. It will give taxpayers more clarity and certainty about tax rules and is expected to encourage more investment, technology exchange, and movement of professionals between India and France, which will strengthen the economic relationship between the two nations.