The other model on which tax treaties are worked out is the one advocated by the Organisation for Economic Cooperation and Development.

K. R. Srivats

New Delhi, Nov. 22

INDIA will continue to go mainly with the UN model in its tax treaty negotiations with other countries, since it continues to be a capital importing country, a top Finance Ministry official has indicated.

The other model on which tax treaties are worked out is the one advocated by the Organisation for Economic Cooperation and Development (OECD).

The OECD has stepped up efforts to engage India increasingly in its deliberations and know the latter's position in a number of areas.

"India has not changed its stance and we still follow the UN model," Mr D.P. Sengupta, Joint Secretary (Foreign Tax and Tax Research), Central Board of Direct Taxes (CBDT), said here recently at an international tax conference when asked whether the country has changed its stance and decided to move away from the UN model to the OECD model.

He said that India is still a capital importing country and the model that is followed would have to take into account the interests of the capital importing countries.

The UN model is considered to be better suited for capital importing and developing countries.

Apart from the fact that India is not a member of the OECD, the Finance Ministry official pointed out that there are problems in stating the country's positions in OECD commentaries.

India does not agree with many of the the organisation's provisions particularly those relating to the Permanent Establishment (PE), royalty, fees for technical services.

Mr Sengupta stressed the need for not only maintaining, but also widening the tax base, and said that this was necessary if one were to see further lowering of tax rates.

Informed sources said that the differences between the two models are limited in number but significant.

Major differences can be found in the areas of permanent establishments, business profits, dividends, royalties, capital gains and other income.

(This article was published in the Business Line print edition dated November 23, 2005)
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