India on Thursday inked a Double Taxation Avoidance Agreement (DTAA) with Uruguay for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and capital.
The DTAA, signed by Central Board of Direct Taxes (CBDT) Chairman M. C. Joshi and Uruguay's Ambassador to India Cesar Ferrer, provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment (PE) in that state. According to an official statement here, profits of construction, assembly or installation projects are to be taxed in the state of source if the project continues in that state for more than six months.
Profits derived by an enterprise from operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise.
However, dividends, interest and royalty income will be taxed both in the country of residence and in the country of source although the maximum rate of tax to be charged in the country of source will not exceed 5 per cent in the case of dividends and 10 per cent in the case of interest and royalties.
Capital gains from the sale of shares will be taxable in the country of source and tax credit will be given in the country of residence, the statement said.
The DTAA also incorporates provisions for effective exchange of information including banking information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards, including anti-abuse provisions to ensure that the benefits of agreement are availed of by genuine residents of the two countries.
“The agreement will provide tax stability to the residents of India and Uruguay and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between the two countries,'' it said.
