India and France The two countries are making their economic relationship strong as India has ratified the Double Taxation Avoidance Convention (DTAC). This change will improve on the mutual understanding of avoidance of double taxation as well as enhance the resilience of foreign investment. The amendments aim to improve tax certainty, minimize disputes and foster a more predictable environment for business operations and cooperation between the two countries.
In the context of India’s rapid emergence as a global growth hub and France’s strategic expansion in the Indo-Pacific, this revision of the treaty augments strengthening and economic integration, in the long-term at least.
The Most Important Amending of the Treaty
Capital Gains Tax — Greater Certainty of Tax Now
Tax capital gains on the basis of company residency. This alteration creates more predictability to investors and curtails the likelihood of interpretational disputes and more confidence in long term investment planning.
Dividend Taxation — Revised Dividend Tax
The new protocol also involves differentiated tax rates:
- 5% for investors who own at least 10 per cent of the capital.
- 15% for other shareholders.
This has replaced the previous flat 10 percent. The lower rate for substantial participation is expected to foster strategic and long-term investment.
For Technical Services: Streamlined Scope (Fees)
As part of the India-US Double Taxation Avoidance Agreement, the definitions of Fees for Technical Services (FTS) have been closely aligned. These alignments facilitate smoother cross-border technology transfers and professional services collaboration.
Permanent Establishment – Definition and Expansion
The treaty has extended provisions regarding Service Permanent Establishment (Service PE), in order that the taxation is representative of modern business models in which the services are provided across national borders apart from the traditional physical presence of an entity.
Repeal of the Most Favoured Nation Clause
The MFN clause removed solves the perennial interpretation problems as well as mitigates the risk of tax uncertainty and enables a clearer and better-articulated treaty process.
Business and Investor Implications
New treaty is projected to:
- Increase cross border investment flows.
- Lower litigation and tax disputes.
- Foster technology transfer and technology innovation collaboration.
- Enhance mobility of professionals between the two countries.
Big French companies in India such as Capgemini, Accor, Sanofi and L'Oréal are expected to benefit from the new dividend taxation regime and better visibility. Meanwhile, Indian companies doing business in France enjoy a more transparent and predictable tax environment.
Backing a Strategic Economic Partnership
A revised India–France tax treaty is a new link in an important strategic alliance among two of the world’s leading economies, whose lines are drawn on fields ranging from defense, infrastructure and sustainability to innovation, to advanced technology and digital innovation.
Both countries are reaffirming their resolve to ease international trade, increase long-term investment and create a sustainable structure for economic growth by modernizing their tax system.
