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India-France Tax Deal Slashes Dividend Tax
12 Dec
Summary
- Dividend tax on French firms cut from 10% to 5% for stakes over 10%.
- India gains expanded tax powers on French investors' share sales.
- MFN clause removal ends tax uncertainty and potential disputes.
India and France have finalized revisions to their 1992 tax treaty, poised to significantly lower dividend taxes for French parent companies operating in India. Under the new protocol, the tax on dividends for French entities holding over a 10% stake in Indian companies will be halved from 10% to 5%. This change is expected to inject new life into bilateral trade, which reached $15 billion last year.
The revised treaty also empowers India with extended tax jurisdiction over share sales by French investors, removing the previous threshold. Furthermore, France's "most favoured nation" status will be revoked, resolving long-standing disagreements over its interpretation and mitigating potential tax uncertainties for French companies. This move follows a landmark Indian Supreme Court decision that impacted cross-border tax agreements.
This agreement is anticipated to enhance investment flows and tax certainty between the two nations. It addresses concerns arising from a 2023 Supreme Court ruling that had created apprehension regarding the application of tax clauses. The treaty revision is projected to be signed in the coming weeks, pending final cabinet approval in India.
