India’s Ministry of Finance has issued Notification No. 39/2026, confirming all provisions of the amending protocol to the 1988 income tax treaty with Brazil are in effect from 1 April 2026.
India’s Ministry of Finance has issued Notification No. 39/2026 on 30 March, 2026, confirming that all provisions of the amending protocol to the 1988 income tax treaty with Brazil are in effect. The original convention was signed in 1988 and previously amended in 2013.
Below is a summary of the key provisions and updates:
Effective dates
The Amending Protocol entered into force on 18 October 2025. In India, its provisions apply to income arising in any previous year beginning on or after 1 April 2026.
Key tax rates and categories
The protocol modifies the withholding tax rates for several types of income:
- Dividends: Generally taxed at 15%. However, a reduced rate of 10% applies if the beneficial owner is a company holding at least 20% of the paying company’s capital for at least 365 days.
- Interest: Generally taxed at 15%. A reduced rate of 10% applies to bank loans granted for at least five years for financing equipment purchases or investment projects.
- Royalties: Taxed at 15% for the use of trademarks and 10% for all other cases.
- Fees for Technical Services (FTS): A new Article (12-A) is introduced, setting a tax rate of 10% on the gross amount of fees for managerial, technical, or consultancy services.
Anti-abuse and “treaty shopping” measures
A significant focus of the amendment is preventing tax evasion and “treaty shopping” (where residents of third states try to indirectly benefit from the treaty).
- Entitlement to benefits (Article 26-A): This new article stipulates that treaty benefits are only available to “qualified persons” (such as individuals, governments, or publicly traded companies) or those engaged in the active conduct of business.
- Principal Purpose Test (PPT): Benefits will be denied if it is reasonable to conclude that obtaining the tax benefit was one of the principal purposes of an arrangement or transaction.
Permanent Establishment (PE) and Services
The definition of a “permanent establishment” is updated to include:
- Service PE: Furnishing services (including consultancy) through employees if the activities continue for more than 183 days in any 12-month period.
- Anti-Fragmentation: Provisions prevent enterprises from avoiding PE status by splitting activities among closely related entities.
- Dependent Agents: An enterprise is deemed to have a PE if a person habitually concludes contracts or plays a principal role in concluding them on behalf of the enterprise.
Other notable provisions
- Shipping and air transport: Profits from international traffic are taxable only in the state where the enterprise is a resident.
- Capital gains: Gains from the alienation of shares in a company resident in a Contracting State may be taxed in that State.
- Double taxation elimination: Both countries will use the deduction/credit method, allowing a resident to deduct the tax paid in the other country from their domestic tax liability.
- Scope of taxes: For Brazil, the “social contribution on net profits” (CSLL) is explicitly included as a covered tax.
