Indian Ministry of Finance issues Circular on MFN clauses in Indian DTAAs
This blog is an update to our previous blogs titled “Reduction of Dividend WHT (to 5%) under India-Netherlands DTAA as India abolishes DDT (from 1 April 2020)” and “Delhi High Court confirms 5% dividend WHT rate under India-Netherlands DTAA”. These blogs affirm that the effective WHT rate on dividends distributed by Indian subsidiaries to their parent companies in the Netherlands could be reduced from 15% (as stipulated in the India-Netherlands DTAA) to 5% (by operation of the MFN-clause in the DTAA) based on a Decree of the Dutch Ministry of Finance and a recent Delhi High Court ruling . On 3 February 2022, the Indian Central Board of Direct Taxes (“CBDT”) issued a Circular stating their interpretation on the MFN clauses in India’s DTAAs with European/OECD member countries, including the Netherlands. The Circular states that the effective WHT rate on dividends under the India-Netherlands DTAA should be 10% (and not 5% as stated in the Dutch Decree and the Delhi High Court ruling). In this blog, we summarize the main contentions of the CBDT with regard to the effective rate of dividend WHT under the India-Netherlands DTAA and also touch upon some considerations for Dutch companies receiving dividends from their Indian subsidiaries.
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