India and the Hong Kong Special Administrative Region (HKSAR) of China signed a DTAA on 19th March, 2018, after agreeing to a framework in November, last year. CBDT vide a press release on 19th March, 2018 provided the purpose of entering into such agreement which is “The Agreement will stimulate flow of investment, technology and personnel from India to HKSAR & vice versa, prevent double taxation and provide for exchange of information between the two Contracting Parties. It will improve transparency in tax matters and will help curb tax evasion and tax avoidance. The Agreement is on similar lines as entered into by India with other countries.”
19th March, 2018 to 30th November, 2018:-
Signing of DTAA is one of the initial step for bringing the DTAA in practice. Once a DTAA is signed by two countries then it is required to be ratified by both the countries. Ratification procedure is as per the requirement of domestic law of both the countries. India completed its relevant procedures required by its laws for the entry into force of the agreement on 11 May 2018 and the government of HKSAR completed all the relevant procedures required by its laws for the entry into force of the agreement on 30th November 2018 (http://www.cgihk.gov.in/news_detail/?newsid=32)
Entry into Force is the date of the latter of the aforesaid notifications / instruments of ratifications. Thus it is said that India – Hongkong DTAA entered into force on 30th November, 2018. However it is pertinent to note what is the relevance of 30th November, 2018.
Effective Date for use of Treaty:-
Till now we have discussed about date of agreement which was 19th March, 2018, date of exchange of instruments of ratification which was 11th May and 30th November and date of notification which is 30th November, 2018.
However it is interesting to note that a tax treaty generally does not come into effect from any of the above three dates. The date from which a treaty comes into effect is provided in a separate Article, generally entitled “Entry into Force” (EIF).
As per EIF Article, generally, a treaty becomes effective from the 1st day of the Financial Year next following the date of the last of the two notifications exchanged by the two countries. EIF Article of DTAA between India and Hong Kong is as produced below (http://www.cgihk.gov.in/docs/1523612078India-Hong%20Kong%20DTAA%20text.pdf):-
“1. Each of the Contracting Parties shall notify the other in writing of the completion of the procedures required by its law for the entry into force of this Agreement.
2. The Agreement shall enter into force on the date of the later of the notifications referred to in paragraph 1 of this Article.
3. The provisions of the Agreement shall thereupon have effect:
(a) in the Hong Kong Special Administrative Region: in respect of Hong Kong Special Administrative Region tax, for any year of assessment beginning on or after the first day of April following the date on which the Agreement enters into force;
(b) in India: in respect of income derived in any fiscal year beginning on or after the first day of April following the date on which the Agreement enters into force.”
Thus since in case of India provisions of the agreement shall have effect from the fiscal year beginning on or after the first day of April following the date on which Agreement enters into force thus effective date from which provisions of DTAA between India and Hong kong can be utilized is 1st April, 2019.
Thus all Indian payers making payment to Hong Kong Residents will be able to take benefit of India – Hong Kong DTAA only in respect to cases where date of deduction is on or after 1st April, 2019 and on similar grounds all hong kong resident will be able to take benefit of India Hong Kong DTAA in respect to taxability in India for Income taxable in India only from AY 2020-21 onwards.
(Author is a CA Final Rank holder (AIR 34 – Nov’15) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( https://www.facebook.com/TheTaxArena/?ref=aymt_homepage_panel ) or his Linkedin account – ( https://www.linkedin.com/in/ca-jatin-grover-a0aa3923 )