India-China tax treaty protocol enters into force

An amending protocol to the China-India tax treaty entered into force as of 5 June. The protocol, signed on 26 November 2018, updates the existing provisions for exchange of information and includes the changes required to implement treaty related minimum standards and certain other changes required under the OECD Base Erosion Profit Shifting (BEPS) action plan.

The preamble states that the treaty is not designed to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance including through treaty shopping arrangements. The treaty also states that by mutual agreement, the competent authorities can determine at taxpayer’s residence having regard to place of effective management (POEM).

The definition of ‘permanent establishment’ (PE) is amended to include certain changes required under the BEPS project. A limitation of benefits clause has also been introduced to deny the benefits of the tax treaty if it is reasonable to conclude that obtaining benefit was one of the principal purposes of any arrangement or transaction.

The article on exchange of information has been amended in line with the treaties India has entered with other countries, including Australia, Singapore, Norway and South Korea.