Tax Treaty Case Law around the Globe 2021

S. 50I. Introduction

Dividend taxation in India has undergone several changes. India levied the highly contentious dividend distribution tax (DDT) for over two decades. This contribution pertains to a ruling from the Indian Income Tax Appellate Tribunal (Tribunal) regarding whether the lower tax treaty rate of 10 % under Article 10(2) of the India-Germany tax treaty (DTC) would prevail over the higher DDT rate of 15 %. The ruling answers a question with which non-resident shareholders of Indian companies have grappled.

Over the years, the DDT rate became higher than the negotiated rates for source state taxation of dividend income under tax treaties. When viewed as a tax on the company, non-resident shareholders were unable to claim credit for the DDT that rendered the lower treaty rate nugatory.

Deciding in favour of the taxpayer, the tribunal determined the DDT to be a tax on shareholder’s dividend income and eligible for treaty benefits.

II. Facts of the Case

The appellant (Giesecke & Devrient India Private Limited) is a company incorporated in India. The appeal pertains to the assessment officer’s order relating to assessment year 2013-2014. The appellant had distributed dividends to its...