Clarification regarding the Most-Favoured-Nation (MFN) clause in the Protocol to India's DTAAs with certain countries

Last updated: 09 February 2022

Save Share

Quick Summary

This circular clarifies the application of the Most-Favoured-Nation (MFN) clause found in India's Double Taxation Avoidance Agreements (DTAAs) with certain countries, particularly OECD members. It addresses situations where India enters into new DTAAs with lower tax rates or restricted scope for certain income types. The clarification specifies that for the MFN clause to apply, the third country must have been an OECD member when the DTAA was signed, and India must have issued a separate notification to import those benefits domestically. Unilateral decrees from other countries do not represent a mutual understanding and are not binding on India.

Circular No. 3/2022 F. No. 503/1/2021-FTTR-I Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (FTTR-I) New Delhi, 3rd February, 2022 Subject: Clarification regarding the Most-Favoured-Nation (MFN) clause in the Protocol to Indias DTAAs with

Daily Limit Reached

You have reached your daily limit of 2 Free Notice & Circular

Subscribe to CCI PRO for unlimited access

Why Upgrade to CCI PRO?

No Ads
WhatsApp Broadcasts
Daily E-Newsletter
Unlimited Notice & Circular Access

BEST VALUE

2 YEAR PLAN

3,499

(Inclusive of GST)

1 YEAR PLAN

1,999

(Inclusive of GST)

View all CCI PRO benfits

Already a PRO member? Login here for an ad-free experience.

FAQ :

The MFN clause generally means that if India enters into a DTAA with another OECD member country that offers more favourable tax treatment on certain income types than an existing DTAA with a first country, that more favourable treatment should also be extended to the first country.

The clarification primarily concerns India's DTAAs with European States and OECD members like the Netherlands, France, the Swiss Confederation, Sweden, Spain, and Hungary, as well as DTAAs with Slovenia, Colombia, and Lithuania.

For the MFN clause to apply, the DTAA with the 'third state' must be signed after the treaty with the first state, the 'third state' must be an OECD member at the time of signing, India must limit its taxing rights in the 'second treaty', and India must issue a separate notification importing these benefits under Section 90 of the Income-tax Act, 1961.

No, unilateral decrees or publications from other countries do not represent a shared understanding between treaty partners and have no binding force on India's interpretation of the MFN clause or on tax liability payable to the Government of India.

The beneficial rate or restricted scope takes effect from the date of entry into force of the Indian DTAA with the third state, not from the date the third state became an OECD member, and only after India has issued a notification importing these benefits.

Yes, notwithstanding this clarification, if a taxpayer has a court decision in their favour regarding the MFN clause, this circular will not affect the implementation of that court order.