Double Tax Avoidance Agreement (DTAA) Between India and Ireland

India has signed DTAAs with almost 100 countries to avoid the burden of paying double taxes on one income source. Countries entering into this Agreement gain tax benefits on several types of earnings. This treaty also facilitates improvement in trade relationships and economic growth.

DTAA between India and Ireland came into force on 26th December 2001. This convection shall have effect from 1st April 2002 in the case of India and from 6th April 2002 for Ireland. The latter has consented to allow credit for underlying tax on corporate taxes paid on revenues earned by Indian businesses and distributed to residents of Ireland. 

In this article, we will delve deep into the significance of the DTAA treaty between both countries and understand the relevance of the taxes covered.

DTAA between India and Ireland

The India-Ireland DTAA is a bilateral arrangement to promote investment and trade between the two nations. It allocates tax rights between Ireland and India, signifying that an entity or person will not be taxed twice on the same income. Moreover, under this Convention, the residents of both nations are entitled to certain tax exemptions and credits.

Even though the Convention possesses a standard Article of non-discrimination, as per the agreed protocol, India has the right to charge an Irish Company permanently established in India at a tax rate which is higher than that imposed on the profits of a similar Indian company. This Agreement covers different types of income like royalties, dividends, interests and fees for technical services where different withholding tax rates are applicable. Moreover, it also eliminates the payment of double taxes on earnings from aircraft and shipping at international traffic.

Significance of DTAA for India and Ireland

India and Ireland share significant commercial and cultural links. Ireland is India's most substantial retail partner in the European Union (EU). Whereas India is Ireland's fastest-growing export market in the Asia-Pacific region. DTAA between India and Ireland is critical to increasing commerce and investment between the two nations.

Ireland is an important destination that provides IT and software services to India. Various Indian IT businesses have their headquarters based in Ireland. This DTAA treaty helps reduce tax rates on royalty payments by Irish firms to Indian businesses for using their software.

Similarly to Ireland, India stands as an attractive market for investment and trade. Various Irish organisations have a key presence in several sectors of the Indian market. It includes technological, educational and pharmaceutical services. Hence the provision of a reduced tax rate on payments of interest by Indian companies to Irish businesses helps to build a strong commercial relationship with one another.

Taxes Covered under DTAA

Article 2 of India Ireland DTAA discusses the taxes covered in this Convention. They are as follows:

1. The Convention applies to the following existing taxes:

2. Ireland:

• Corporation tax
• Income tax
• Capital gain tax (also called “Irish Tax”)

3. India: 

• The income tax that includes any surcharge (also called "Indian Tax")

4. DTAA shall apply to taxes on capital gains and incomes imposed on behalf of one Contracting State, or its local authorities or political subdivisions, irrespective of how it gets levied.

5. The treaty applies to any identical or similar taxes charged after the date of signing the Convention. Moreover, the competent authorities of one Contracting State will notify about any changes in the taxation laws to the other State.

6. All taxes levied on total income or elements of income that include capital gains from the alienation of movable or immovable property will be considered income and capital gains taxes.

India and Ireland DTAA Tax Rates

The DTAA between India and Ireland tends to provide lower tax rates on different types of income. Withholding tax rates applicable in Ireland and India are different under this treaty. The TDS rates as per the treaty are:

• Interest: 10%*
• Fees for technical services: 10%
• Dividend: 10%
• Royalty: 10%

*Note: The dividend/interest earned by some institutions, such as the Reserve Bank of India and the Indian Government, is exempted from taxation in the country of income source.

Taxation on Capital Gains under DTAA

Article 13 of India Ireland DTAA discusses the taxation policies applicable to capital gains. The treaty describes the following:

• If a company from one nation has a permanent business or a fixed base in another country and sells some of its movable property from that location, it may be required to pay taxes on the profits it makes in the second country. Gains from selling the movable property itself, either alone or as part of the complete firm, are included. In essence, if you benefit from selling property in another country, that government may oblige you to pay taxes on the profits.
• Any capital gains acquired by the resident of one Contracting State from the alienation of any immovable property referred to in Article 6 and based in the other Contracting State might also get taxed in another State.
• Any gains that are derived by a company of any Contracting State from alienating aircraft or ships operated at international traffics or any movable property pertaining to functions of such aircraft or ships shall get taxed only in that State.

Exchange of Information under DTAA

Article 26 of DTAA between India and Ireland provides arrangements related to the Exchange of Information. Some of them are:

• The Convention authorises competent authorities in Contracting States to share information and documents required for executing the Convention's requirements or domestic legislation about taxes covered by it. 
• Information exchanged by a Contracting State shall be treated as secret, much as information gathered under domestic legislation, and should only be divulged to permitted individuals or agencies. 
• The Convention does not oblige a Contracting State to take administrative actions that are inconsistent with its own laws or administrative practices or those of another Contracting State. 

Final Words

Overall, the DTAA treaty is crucial in promoting investment and trade between two nations. It helps to eliminate double taxes on various incomes and reduce the tax burden of the residents from both nations. Moreover, the Agreement discusses provisions related to taxes covered and taxation policies to be implemented on several types of income. This makes it easy for individuals to understand the tax implications on their income. DTAA between India and Ireland has been in force for a long time. Thus, it has significantly increased the economic growth of both countries.

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