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Central Board of Direct Taxes (CBDT) | Ministry of Finance
India and France have signed an Amending Protocol to update their 1992 Double Taxation Avoidance Convention (DTAC), aligning the treaty with modern international tax standards and the BEPS Multilateral Instrument (MLI). Signed in February 2026, the protocol grants full taxing rights for capital gains from share sales to the jurisdiction where the company is resident and officially deletes the controversial Most-Favoured-Nation (MFN) clause.
Key technical changes include the introduction of a split dividend tax rate—5% for holdings of at least 10% capital and 15% for others—and the expansion of the “Permanent Establishment” definition to include Service PE. Furthermore, the protocol updates provisions for the Exchange of Information and adds a new article on Assistance in Collection of Taxes, significantly strengthening mutual tax cooperation and providing greater fiscal certainty for cross-border investments.
Key Pillars of the India-France DTAC Amending Protocol
Capital Gains Realignment: Providing full taxing rights to the source country (where the company is resident) for gains arising from the sale of shares.
MFN Clause Deletion: Formally removing the Most-Favoured-Nation clause to resolve long-standing interpretive disputes and ensure treaty clarity.
Split Dividend Taxation: Replacing the flat 10% rate with a tiered system (5% or 15%) based on the level of capital ownership.
Service PE & Technical Fees: Expanding the scope of taxable presence via “Service Permanent Establishment” and aligning “Fees for Technical Services” with the India-US DTAA standards.
Global Tax Transparency: Incorporating BEPS MLI provisions and enhancing international assistance in tax collection and information exchange.
What is the “Most-Favoured-Nation (MFN) Clause”? The MFN clause in a tax treaty typically ensures that if one country (e.g., India) offers a more favorable tax rate or narrower scope of taxation to a third country in a subsequent treaty, that same benefit must be extended to the original treaty partner (e.g., France). In the India-France context, the MFN clause had led to significant legal uncertainty regarding the applicability of lower tax rates granted by India to other OECD members. By deleting this clause, the new Amending Protocol provides a “Clean Break” from past interpretive issues, ensuring that the tax relationship is governed strictly by the specific terms agreed upon by India and France, thereby increasing “Implementation Fidelity” in cross-border tax administration.
Policy Relevance
For India, this protocol represents a transition from “Legacy Treaty Ambiguity” to “Strategic Fiscal Clarity,” essential for attracting long-term French investment into the National Monetisation Pipeline 2.0.
Sovereign Tax Right Preservation: Securing the right to tax capital gains at the source ensures that India retains its fair share of revenue from the divestment of domestic companies by foreign entities.
Bypassing Treaty Litigation: Formally removing the MFN clause allows the CBDT to bypass the extensive litigation and “Path Dependency” associated with retrospective tax claims and treaty shopping.
Operationalizing Investment Flow: The 5% dividend rate for significant capital holders (10%+) incentivizes French PSUs and private investors to take larger, stable equity stakes in Indian infrastructure and energy projects.
Fiscal Transparency via MLI: Incorporating BEPS MLI provisions aligns India with the highest global benchmarks for preventing base erosion and profit shifting, protecting the integrity of the domestic tax base.
Data-Driven Tax Cooperation: Enhanced Exchange of Information protocols provide the “High-Quality Data” necessary for the Ministry of Finance to monitor cross-border financial flows and prevent tax evasion.
Relevant Question for Policy Stakeholders: In what ways should the Directorate of International Taxation utilize the BEPS MLI provisions to refine its audit protocols for multi-layered corporate structures involving India and France?
Follow the full update here: India and France sign Amending Protocol to DTAC