After Mauritius, now government wants to amend Dutch tax treaty; asks Netherlands to resume talks
India has asked the Netherlands to resume negotiations on amending their bilateral tax treaty as the government extends its efforts to plug loopholes in such accords to curb misuse. The Dutch tax treaty , which allows exemption from capital gains and a lower rate of tax on dividends, has led to the proliferation of holding company structures.
The move follows the amendment of the tax treaty with Mauritius earlier this month, restoring India’s right to tax capital gains on entities based in that jurisdiction. “The idea is to start talks again (with the Dutch),” said a government official aware of the development.
For India, it’s one of the four treaties along with the Mauritius accord that offers capital gains tax exemption to investors, the others being pacts with Singapore and Cyprus.
After plugging gaps in the Mauritius tax treaty, the government is keen on doing the same with the rest. It has already begun moves to tighten the Singapore and Cyprus accords.
The Netherlands has been in global focus due to tax practices known as the Dutch Sandwich — a multiple-layered holding company structure that has helped companies avoid taxes or pay minimal taxes in any jurisdiction.
India and the Netherlands had initiated talks in 2013 to amend the treaty but weren’t able to make much headway. The government has sought to fix dates for official-level discussions with the Netherlands as a first step toward amending the treaty.
India will try to renegotiate the treaty to either deny the advantage completely or introduce a Limitation of Benefit clause, said officials. The treaty also offers other benefits such as a withholding rate of 10% for royalties, interest and fees for some technical services.
These flow from the treaty protocol, which contains the most-favoured nation (MFN) clause. That extends benefits to the 1989 India-Netherlands accord that were allowed as part of other treaties signed subsequently. Tax experts said the MFN benefits may not change.
“I don’t foresee India renegotiating the treaty to deny these benefits as these benefits are granted in line with those given to other jurisdictions like USA , Germany, Sweden, etc. to facilitate trade and transfer of technology, technical knowledge/knowhow,” said Amit Maheswari, partner, Ashok Maheswari & Associates LLP.