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The Ministry of Finance has announced that the Government of India has signed a Double Taxation Avoidance Agreement (DTAA) with the Government of the Grand Duchy of Luxembourg.

It has said that:

‘The DTAA covers income-tax and wealth tax including any surcharge thereon in the case of India. It covers income tax on individuals, corporation tax, capital tax and communal trade tax in the case of Luxembourg.

The rate of tax in the country of source cannot exceed ten percent of the gross amount of payment in case the beneficial owner of the payments (of dividend, interest, royalties, etc.) is a resident of the other country.

Capital gains from the alienation of shares are taxable in the country of the company’s residence.

Double taxation is avoided by each country giving credit for taxes paid by its residents in the other country.

To deal with fiscal evasion, information can be exchanged in cases which are under investigation in either country. Also, both countries are to assist each other in the collection of revenue.’

With reference to another DTAA, in a 2008 judgment which dismissed the IT Department’s plea to tax Hyundai Heavy India Co. Ltd. at a higher rate, a Bench the Supreme Court reportedly said, “[T]he provisions of Section 90 (2) [of the Finance Act] does not say that DTAA will override the provisions of the Finance Act. Tax rate prescribed by an Act of Parliament cannot be whittled down by reference to the provisions of an earlier assessment.”