Convention between the Government of the Republic of India and the Government of Republic of Finland for the avoidance of double taxation with respect to taxes on income and on capital
Published vide Notification No. G.S.R. 495(E), dated 13th August, 1998
Act2708
Ministry of Finance
(Departmental of Revenue)
Central Board of Direct Taxes
(Foreign Tax Division)
G.S.R. 495(E). – Whereas the Convention between the Government of the Republic of India and the Government of Republic of Finland for the avoidance of double taxation with respect to taxes on income and on capital came into force on the notification by the Contracting States to each other of the compliance of the constitutional requirements, as required by Paragraph 1 of Article 29 of the said Convention;
And whereas the Central government, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964), and section 44A of the Wealth Tax Act, 1957 (27 of 1957), directed, by Notification of the Government of India in the Ministry of Finance (Department of Revenue) (Foreign Tax Division) number G.S.R. 786(E) dated the 20th November 1984, that all the provisions of the Convention annexed to the said Notification shall be given effect to in the Union of India;
And whereas the Government of Republic of Finland and the Government of Republic of India desired to amend the said Convention between the Contracting States;
And whereas the annexed Protocol to amend the aforesaid Convention between the Government of the Republic of India and the Government of the Republic of Finland for the avoidance of double taxation with respect to taxes on income and on capital has come into force on 10th January, 1998, thirty days after date of later of notifications referred to in and as required by Article VII of the said Protocol.
Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961) and section 44A of the Wealth Tax Act, 1957 (27 of 1957), the Central Government hereby directs that all the provisions of the said Protocol shall be given effect to in the Union of India and the aforesaid Convention shall stand amended to the extent mentioned in the annexed Protocol.
Annexure
Protocol to amend the convention between the Republic of India and the Republic of Finland for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital.
The Government of the Republic of India and the Government of the Republic of Finland,
Desiring to conclude a Protocol to amend the Convention between the Contracting Parties for the avoidance of double taxation with respect to taxes on income and on capital, signed at Helsinki on 10 June, 1983.
Have agreed as follows :
Article I
Paragraph 1 of Article 2 of the Convention shall be deleted and replaced by the following :
“1. The taxes which are the subject of the present Convention are:
(a) in Finland:
(i) the state income taxes;
(ii) the corporate income-tax;
(iii) the communal tax;
(iv) the church tax;
(v) the tax withheld at source from interest;
(vi) the tax withheld at source from nonresidents’ income; and
(vii) the state capital tax;
(hereinafter referred to as “Finnish tax”)
(b) In India :
(i) the income-tax including any surcharge thereon; and
(ii) the wealth-tax;
(hereinafter referred to as “Indian tax”).”
Article II
Sub-paragraph (f) of paragraph 1 of Article 3 of the Convention shall be deleted and replaced by the following, and the following new sub-paragraphs (g) and (h) shall be inserted after sub-paragraph (f):
“(f) the term “competent authority” means:
(i) in Finland, the Ministry of Finance, its authorised representative or the authority which, by the Ministry of Finance, is designated as competent authority,
(ii) in India, the Central Government in the Ministry of Finance (Department of Revenue), or their authorised representative;
(g) the term “fiscal year” means:
(i) in Finland, the “tax year” as defined in the taxation laws of Finland relating to income tax ;
(ii) in India, the “previous year” as defined in Section 3 of the Income-tax Act, 1961;
(h) the term “tax” means Finnish tax or Indian tax, as the context requires, but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which the Convention applies or which represents a penalty or interest imposed relating to those taxes.”
Article III
Paragraphs 1, 2 and 3 of Article 11 of the Convention shall be deleted and replaced by the following:
“1. 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. 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 the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.
2. However, as long as an individual resident in Finland is entitled to a tax credit in respect of dividends paid by a company resident in Finland, the following provisions of this paragraph shall apply in Finland instead of the provisions of paragraph 1:
Dividends paid by a company which is a resident of Finland to a resident of India shall be exempt from Finnish tax on dividends.
3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”
Article IV
Paragraph 1, 2, 3 and 4 of Article 12 of the Convention shall be deleted and replaced by the following, and the existing paragraphs 5 and 6 shall be renumbered as paragraphs 6 and 7, respectively:
“1. Interest arising in a Contracting State and paid to a resident of the other Contracting Slate may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
3. Notwithstanding the provisions of paragraphs 1 and 2,
(a) Interest arising in India shall be exempt from Indian tax if the interest is paid to
(i) the Bank of Finland; and
(ii) the Finnish Fund for Industrial Cooperation Ltd. (FINNFUND) or any other similar institution, as may be agreed upon from time to time between the competent authorities of the Contracting States;
(b) interest arising in Finland shall be exempt from Finnish tax if the interest is paid to
(i) the Reserve Bank of India;
(ii) National Housing Bank;
(iii) Small Industries Development Bank of India (SIDBI); and
(iv) EXIM Bank;
(c) interest arising in a Contracting State on a loan guaranteed by any of the bodies mentioned or referred to in sub-paragraphs (a) or (b) and paid to a resident of the other Contracting State shall be exempt from tax in the first-mentioned State.
4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds and debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.
5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply.”
Article V
Paragraphs 2, 3 and 4 of Article 13 of the Convention shall be deleted and replaced by the following and the existing paragraphs 5, 6 and 7 shall be renumbered as paragraphs 6, 7 and 8, respectively :
“2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but the tax so charged shall not exceed :
(a) in the case of royalties within sub-paragraph (a) of paragraph 3, and fees for technical services within sub-paragraphs (a) and (c) of paragraph 4;
(i) during the years 1997 to 2001 :
(aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and
(bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and
(ii) during subsequent years 15 per cent of the gross amount of such royalties or fees for technical services; and
(b) in the case of royalties within sub-paragraph (b) of paragraph 3 and fees for technical services defined in sub-paragraph (b) of paragraph 4, 10 per cent of the gross amount of such royalties and fees for technical services.
3. For the purposes of this Article, the term “royalties” means
(a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on film, tape, or otherwise means of reproduction for use in connection with radio or television broadcasting any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and
(b) payments of any kind received as a consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.
4. For the purposes of paragraph 2, and subject to paragraph 5, the term “fees for technical services” means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which;
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received; or
(b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in sub-paragraph (b) of paragraph 3 is received; or
(c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.
5. The definitions of fees for technical services in paragraph 4 shall not include amounts paid :
(a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in sub-paragraph (a) of paragraph 3 ;
(b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic;
(c) for teaching in or by educational institutions;
(d) for services for the private use of the individual or individuals making the payment; or
(e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15″.
Article VI
1. Sub-paragraph (b) of paragraph 1 of Article 24 the Convention shall be deleted and replaced by the following:
“(b) Dividends paid by a company being a resident of India to a company which is a resident of Finland and which controls directly at least 10 per cent of the voting power in the company paying the dividends shall be exempt from Finnish tax.”
2. Sub-paragraph (a) of paragraph 2 of the Article shall be deleted and replaced by the following:
“(a) sections 10(4), 10(4A), 10(5B), 10(15)(iv) and 80-1A of the Income-tax Act, 1961 so far as they are in force or as modified only in minor respects so as not to affect their general character; or”
Article VII
1. The Contracting Parties shall notify each other that the constitutional requirements for the entry into force of this Protocol have been complied with.
2. The Protocol shall enter into force thirty days after the date of the later of the notifications referred to in paragraph 1 and its provisions shall have effect:
(a) in Finland:
(i) in respect of taxes withheld at source, on income derived on or after 1 January in the calendar year next following the year in which the Protocol enters into force;
(ii) in respect of other taxes on income, and tax on capital, for taxes chargeable for any fiscal year beginning on or after 1 January in the calendar year next following the year in which the Protocol enters into force;
(b) in India, in respect of taxes for any fiscal year beginning on or after the 1 April of the calendar year next following the year in which the Protocol enters into force.
In witness whereof the undersigned, duly authorised thereto, have signed this Protocol.
Done in duplicate at New Delhi this ninth day of April 1997, in the Finnish, Hindi and English languages, all the texts being equally authentic, except that in the case of divergence of interpretation the English text shall prevail.
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