Background
India’s Double Tax Avoidance Agreements (“DTAAs”) with 12 countries (namely, the Netherlands (1988), Philippines (1990), France (1992), Belgium (1993), Spain (1993), Switzerland (1993), U.K. (1993), Sweden (1997), Hungary (2003), Saudi Arabia (2006), Finland (2010) and Nepal (2011)) contain Most Favoured Nation (“MFN”) clauses. While the MFN clause in the DTAA with Philippines deals with income from air transport and those in the DTAAs with Saudi-Arabia and U.K. deal with deduction of expenses in relation to permanent establishments, the MFN clauses in the other 9 DTAAs deal with WHT on dividends, interest, royalties and fees for technical services. Though the 9 MFN clauses are formulated differently, the underlying purpose of these clauses is that India is obliged to provide “favourable treatment” (as in, lower WHT rate or more restricted scope of application) to the residents of the DTAA-partner country (in relation to the item of income specified – dividends and/or interest and/or royalties) if such treatment is provided to the residents of certain other DTAA-partner countries via DTAAs concluded after the DTAA that contains the MFN clause.
