DECLARATION OF DIVIDEND
KEY ASPECTS TO BE COVERED
MEANING OF DIVIDEND
ARTICLE 10(1) OF INDIA USA TREATY – RIGHT TO TAX
Dividends paid by
a company which is a resident of a Contracting State
to a resident of the other Contracting State
may be taxed in that other State
RIGHT TO TAX
PAID – HOW IT FARES ?
ARTICLE 10(2) OF INDIA USA TREATY – RIGHT OF SOURCE STATE TO TAX DIVIDEND
However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State,
but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed :
• 15 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 per cent of the voting stock of the company paying the dividends.
• 25 per cent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid
BENEFICIAL OWNERSHIP – NOT DEFINED IN TREATY
TEST OF BENEFICIAL OWNERSHIP ?
CAPITAL – NO OECD DEFINITION MAKES REFERENCE TO LOCAL COMPANY LAW MANDATORY
WHETHER TAXPAYER CAN OPT FOR ACT PROVISION INSTEAD OF TREATY ?
ARTICLE 10(3) OF INDIA USA TREATY – MEANING OF DIVIDEND
The term “dividends” as used in thisArticle means
income from shares or other rights, not being debt-claims, participating in profits,
income from other corporate rights which are subjected to the same taxation treatment as income from shares by the taxation laws of the State of which the company making the distribution is a resident ; and
income from arrangements, including debt obligations, carrying the right to participate in profits, to the extent so characterised under the laws of the Contracting State in which the income arises.
DIVIDEND – WHAT ALL IS COVERED ?
ARTICLE 10(4) OF INDIA USA TREATY – PE OR FIXED BASE
The provisions of paragraphs 1 and 2 shall not apply
if the beneficial owner of the dividends, being a resident of a Contracting State,
carries on business in the other Contracting State, of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the dividends are attributable to such permanent establishment or fixed base.
In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be, shall apply
ARTICLE 10(5) – RIGHT TO TAX DIVIDEND DECLARED BY FOREIGN CO DERIVING INCOME FROM OTHER STATE
Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State,
that other State may not impose any tax on the dividends paid by the company except insofar as such dividends are paid to a resident of that other State (Case 2)
or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, (Case 3)
nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State (Case 4)
CASE 1 AND 2 – F1 DERIVES INCOME FROM SOURCE STATE
CASE 3 AND 4
INDIA HUNGARY TREATY – PROTOCOL
Article 2 – Taxes Covered
Article 4 – Concept of Residence in Tax Treaties
Article 5 – Permanent Establishment
Article 6 – Income From Immovable Property
Article 7 – Business Profits
Article 8 – Shipping & Air Transport
Article 9 – Associated Enterprise
Article 10 – Dividend
Article 11 – Interest
Article 12 – Taxation of Royalties and Fee for Technical Services
Article 13 – Capital Gains
Article 14 – Independent Personal Services
Article 15 – Dependent Personal Services (Employment)
Article 16 – Directors Fees
Article 17 – Artistes and Sportspersons
Article 18 – Pension and Other Social Security Payments
Article 19 – Government Services
Article 20 – Students
Article 21 – Other Income
Article 23 – Elimination of Double Taxation
Article 24 – Non-Discrimination & Article 25 – Mutual Agreement Procedure (MAP)
Article 26 – Exchange of information
Artilce 27 – Assistance in the collection of taxes
Article 28 – Member of Diplomatic Mission and Consular Posts
Article 29 – Entry into Force
Article 30 – Termination