India and France have revised their three-decade-old tax treaty, reducing dividend levies for major French investors and strengthening provisions on capital gains and tax information exchange, according to a BBC report. The amended agreement affects companies including Sanofi, Renault, and L’Oreal, which have expanded investments in India over recent years.
The revised protocol cuts the dividend tax to 5 per cent for French companies holding at least 10 per cent of shares in an Indian firm and sets it at 15 per cent for holdings below 10 per cent. It removes the most-favoured-nation clause, which previously allowed French entities to claim lower tax rates in India.
The update also expands India’s right to tax specific transactions, including capital gains from the sale of shares, even where a French entity holds less than 10 per cent of an Indian company. KPMG described the revision as aligning the bilateral trade framework with India’s current treaty policy and international tax standards while safeguarding the country’s tax base.
The protocol incorporates updated provisions on Exchange of Information and introduces a new article on Assistance in Collection of Taxes, in line with international norms. These measures aim to facilitate seamless exchange of tax information and strengthen cooperation between India and France.
The revised treaty also integrates the applicable provisions of the BEPS Multilateral Instrument (MLI), which both countries had previously ratified. This ensures consistency between the bilateral treaty and the multilateral framework designed to prevent base erosion and profit shifting.
The amended agreement will come into effect following completion of formalities and legal approvals in both India and France. Its announcement coincided with French President Emmanuel Macron’s visit to India, during which the two nations elevated their bilateral relationship to a “Special Global Strategic Partnership” and expanded cooperation in defence and space technology.
Officials highlighted that the revised tax protocol is expected to secure economic activity for French and Indian businesses and encourage further investments and collaborations between the two countries.
The revision of dividend and capital gains tax rules is seen as part of India’s broader effort to maintain a stable investment environment while protecting its tax base. By setting clear tax obligations for foreign investors and eliminating provisions that allowed preferential treatment, the treaty seeks to enhance transparency and predictability in cross-border investments.
The protocol’s amendments also underline the importance of aligning domestic tax policies with global standards, particularly in areas such as tax information exchange, assistance in tax collection, and the incorporation of BEPS-related provisions.
The updated treaty is expected to provide legal clarity and reduce disputes in tax matters involving French investors, ensuring compliance with international norms while preserving India’s revenue interests.
