The Government of India has signed an agreement with Uruguay for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (DTA). According to the DTA the business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment such as a branch or factory in that state. If the project continues in a state for more than six months, the profits of construction, assembly or installation projects will be taxed in the state of source. On the other hand, the profits derived by an enterprise from the operation of ships or aircraft in international traffic will be taxable in the country of residence of the enterprise.
In case of dividends the maximum rate of tax to be charged in the country of source will not exceed 5% and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source, and tax credit will be given in the country of residence.
Provisions for effective exchange of information including banking information and assistance in the collection of taxes between the tax authorities of the two countries in line as per internationally accepted standards are incorporated in the agreement. This assures anti-abuse provisions so that the benefits of the agreement are availed of by the genuine residents of the two countries.
