India, France Amend Tax Treaty to Boost Investment Certainty

India and France have signed a Protocol amending the India–France Double Taxation Avoidance Convention (DTAC), marking a significant step toward modernising bilateral tax cooperation and aligning it with evolving international standards.

The Amending Protocol was signed during the recent visit of the President of France to India by Mr. Ravi Agrawal, Chairperson of the Central Board of Direct Taxes (CBDT), and Mr. Thierry Mathou, Ambassador of France to India, on behalf of their respective governments.

Capital Gains: Full Taxing Rights to Source Jurisdiction

A key amendment grants full taxing rights on capital gains arising from the sale of shares to the country where the company is resident. This provision provides clarity on taxing jurisdiction and seeks to reduce disputes over cross-border share transfers.

MFN Clause Removed

The Protocol deletes the Most-Favoured-Nation (MFN) Clause from the existing DTAC framework, bringing closure to interpretational and legal issues that had arisen around its applicability. The removal is expected to enhance certainty and avoid protracted litigation.

Revised Dividend Tax Structure

The amended treaty replaces the earlier single dividend tax rate of 10% with a two-tier structure:

• 5% tax for shareholders holding at least 10% of the capital of the company

• 15% tax in all other cases

The revised structure aligns dividend taxation with global treaty practices while providing preferential treatment for substantial investors.

Technical Services and Permanent Establishment Expanded

The definition of Fees for Technical Services (FTS) has been aligned with the India–US DTAA, bringing greater consistency across India's major tax treaties.

Additionally, the scope of Permanent Establishment (PE) has been expanded to include a Service PE, widening the circumstances under which business profits may be taxed in the source country.

Enhanced Information Exchange and Tax Recovery

The Protocol updates provisions on Exchange of Information (EOI) in line with international standards and introduces a new Article on Assistance in Collection of Taxes. These measures aim to:

• Strengthen cooperation between tax authorities

• Facilitate seamless exchange of information

• Improve cross-border tax enforcement

The amendments also incorporate applicable provisions of the Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI), which both India and France have signed and ratified.

Entry into Force

The changes will come into effect after both countries complete their respective domestic legal procedures and notify each other, in accordance with agreed terms.

Strengthening Economic Ties

By updating the 1992 treaty framework, the Amending Protocol seeks to balance the interests of both nations while providing greater tax certainty for businesses and investors.

The revised DTAC is expected to:

• Boost cross-border investment flows

• Facilitate technology transfer

• Encourage movement of professionals

• Strengthen overall economic cooperation

The updated treaty framework reflects India and France's shared commitment to transparent, predictable and internationally compliant tax regimes, further deepening their strategic economic partnership.