Fees for Technical Services Tax Rate Between India and Denmark Under DTAA

Quick answer: Article 13(2) of the India-Denmark DTAA (signed 8 March 1989, effective in India from the financial year beginning 1 April 1990) caps fees for technical services (FTS) paid to a Danish beneficial owner at 20% of the gross amount — the identical paragraph and rate applied to royalties. Article 13(4) defines FTS broadly, as payments for managerial, technical or consultancy services, with no 'make available' requirement — unlike the India-USA or India-UK treaties. Because 20% also matches India's domestic rate under section 207(2) of the Income-tax Act, 2025, the treaty provides no reduction today, only a ceiling against future rate rises.

Key takeaways:

• 20% cap under Article 13(2) — the same paragraph and rate that governs royalties
• Matches India's domestic 20% rate under section 207(2) of the Income-tax Act, 2025 — no present-day saving, only a ceiling
• No 'make available' requirement — broad scope covering any managerial, technical or consultancy fee (Article 13(4))
• Payments to an employee of the payer are excluded from the FTS definition
• FTS connected with a Danish PE or fixed base in India is taxed as business profits under Article 7 or 15

FTS Tax Rate Between India and Denmark

The India-Denmark DTAA, signed at Copenhagen on 8 March 1989 and effective in India from the financial year beginning 1 April 1990, taxes fees for technical services (FTS) inside Article 13 — the same combined "Royalties and Fees for Technical Services" article that governs royalty income, rather than a separate FTS article as in some of India's other treaties. Both limbs share the identical 20% cap.

For the royalty rules under the same article, see our royalty tax rate page; for the treaty's history and PE rules, see the India-Denmark DTAA complete guide; for the consolidated rate table, see the withholding tax rates page.

Treaty Rate vs Domestic Rate: Detailed Comparison

Domestic Rate (Without DTAA)

Under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), fees for technical services paid to a non-resident are taxed at 20% of the gross amount (plus surcharge and cess) — doubled from 10% by the Finance Act 2023, effective 1 April 2023.

DTAA Rate (With Treaty)

Article 13(2) of the India-Denmark DTAA caps the source-state tax on FTS at 20% of the gross amount. Since this equals the current domestic rate, there is no rate reduction — but Indian tribunals generally treat a DTAA cap as inclusive of surcharge and cess, so the treaty figure can still edge out the domestic effective cost, and it locks in 20% as a ceiling regardless of any future domestic increase.

Broader Scope Than 'Make Available' Treaties

Because Article 13(4) contains no 'make available' requirement, the India-Denmark FTS definition is wider than treaties like India-USA or India-UK, which limit FTS to services that transfer technical knowledge, skill or know-how the recipient can apply independently after the contract ends. Under this treaty, any managerial, technical or consultancy fee can qualify as FTS regardless of whether any knowledge is retained by the Indian payer afterward — a distinction that matters for Danish engineering, IT, and consulting firms structuring service contracts with Indian clients.

Who Qualifies for the 20% Rate

Beneficial Ownership

Article 13(2) requires the recipient to be the beneficial owner of the fee. A Danish intermediary contractually obligated to pass the fee on to a service provider in a third country cannot claim the treaty rate on its own account.

Tax Residency Certificate from Skattestyrelsen

The Danish service provider must obtain a Tax Residency Certificate from Skattestyrelsen, under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961), and file Form 41 (formerly Form 10F) electronically if the TRC lacks prescribed particulars.

Anti-Abuse: PPT Applies; No LOB Clause

The MLI, signed 7 June 2017 and in force for India from 1 October 2019 and Denmark from 1 January 2020, makes this a matched Covered Tax Agreement on which the Principal Purpose Test applies from FY 2020-21. There is no Limitation of Benefits article in the treaty. Denmark's separate reservation against MLI Articles 12 to 14 — not to be confused with this treaty's own Article 13 governing FTS — only changes the permanent establishment definition under Article 5; it leaves the FTS rate and the PPT untouched. India's domestic GAAR remains the backstop against artificial service-fee routing.

No PE or Fixed-Base Attribution

Under Article 13(5), the 20% cap does not apply where the Danish beneficial owner carries on business through a permanent establishment in India, or performs independent personal services from an Indian fixed base, and the contract generating the fee is effectively connected with that PE or fixed base. The fee is then taxed as business profits under Article 7, or under Article 15.

FTS-Specific Treaty Provisions Under Article 13

Definition of FTS (Article 13(4))

"Fees for technical services" means payments of any amount to any person, other than payments to an employee of the person making the payment, in consideration for services of a managerial, technical or consultancy nature — including the provision of services of technical or other personnel. Payments to an employee of the Indian payer are outside the FTS definition entirely, whatever their nature.

Article 13(1): Residence-State Taxation

FTS arising in a Contracting State and paid to a resident of the other State may be taxed in that other (residence) State.

Article 13(2): The Source-State Cap

India, as the source State, may also tax the FTS, but the tax on the beneficial owner cannot exceed 20% of the gross amount — identical to the royalty cap in the same paragraph.

Article 13(6): Source Rule

FTS is deemed to arise where the payer is resident. If the payer has a PE or fixed base in a State for which the liability to pay was incurred, and the fee is borne by that PE or fixed base, the FTS is instead deemed to arise where the PE or fixed base is situated.

Article 13(7): Arm's Length Rule

Where a special relationship between payer and beneficial owner inflates the fee above an arm's-length amount, the 20% cap applies only to the arm's-length portion; the excess is taxable under domestic law, closely linked to transfer pricing scrutiny of related-party service fees.

Documentation Required to Claim the Treaty Rate

Tax Residency Certificate (TRC)

A TRC from Skattestyrelsen for the relevant financial year, mandatory under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

Form 41 (formerly Form 10F)

If the TRC omits any prescribed particular, Form 41 must be filed electronically, even without an Indian PAN.

Self-Declaration, No-PE Certificate and Service Agreement

A self-declaration of beneficial ownership and no-PE status, together with the underlying service agreement describing the managerial, technical or consultancy scope of work, supports the FTS classification and the 20% rate.

Withholding Procedure for Indian Payers

Section 393(2): The TDS Obligation

Under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), the Indian payer deducts tax at source at payment or credit, whichever is earlier, at 20% (identical whether the treaty or the domestic rate is applied).

Forms 145 and 146 (formerly Forms 15CA and 15CB)

Before remitting the fee to Denmark, the payer files Form 145 online; for remittances exceeding INR 5 lakh, a Chartered Accountant must certify Form 146, confirming taxability and the applicable article.

Section 395(1): Lower Withholding Certificate

A Danish service provider expecting a lower actual tax liability can apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising a lower deduction rate.

Common Disputes and Practical Considerations

FTS vs Business Profits

Because Article 13(4) has no 'make available' filter, the main classification dispute under this treaty is usually whether a payment is FTS at all, rather than ordinary business income under Article 7 taxable only where the Danish provider has an Indian PE. A genuinely standardised service with no managerial, technical or consultancy element — pure equipment supply, for instance — falls outside Article 13 entirely.

FTS vs Royalty

Licensing existing know-how (a royalty under Article 13(3)) and performing a bespoke technical service using that know-how (FTS under Article 13(4)) sit in the same paragraph 13(2) at the identical 20% rate under this treaty, which reduces the financial stakes of the classification question compared with treaties where the two rates differ — though the distinction can still matter for transfer pricing documentation and for treaties with third countries that might apply by comparison.

Surcharge and Cess Over the Treaty Rate

Multiple Income Tax Appellate Tribunal rulings treat the DTAA rate as an all-inclusive ceiling with no surcharge or cess added on top, though the administration does not always follow this position at the assessment stage.

Practical Examples and Calculations

Example 1: Technical Consultancy for a Manufacturing Project

Odense Engineering ApS, a Danish consultancy, provides technical design and supervisory consultancy to an Indian manufacturer for a fee of DKK 5 million.

• Without DTAA: TDS at 20% (domestic) = DKK 1 million.
• With DTAA (Article 13(2)): TDS at 20% = DKK 1 million — identical, since both rates match.
• Practical value of the treaty: the 20% figure is fixed for Odense Engineering regardless of any future increase in India's domestic FTS rate.

Example 2: Management Fee Connected with a PE

A Danish group charges a management fee to its Indian branch (a PE) for group-level administrative support. Because the fee is effectively connected with the PE's own business, Article 13(5) redirects it from the 20% cap to Article 7, taxing it as branch business profits on a net basis instead of as a gross 20% withholding.

Example 3: Construction Supervisory Fees and the PE Threshold

A Danish contractor's supervisory personnel oversee an installation project in India for 200 days, crossing the Article 5(2)(k) construction-PE threshold of 183 days or more (aggregated across sites). Once a PE arises, supervisory fees connected with that PE are no longer taxed as FTS under Article 13 but as business profits attributable to the PE under Article 7.

Frequently Asked Questions

What is the FTS tax rate under the India-Denmark DTAA?

Article 13(2) caps fees for technical services paid to a Danish beneficial owner at 20% of the gross amount — the same paragraph and rate that governs royalties. This matches India's domestic rate under section 207(2) of the Income-tax Act, 2025, so the treaty provides no reduction today, only a ceiling against future increases.

Does the India-Denmark DTAA have a 'make available' clause for FTS?

No. Unlike the India-USA or India-UK treaties, Article 13(4) has no 'make available' requirement. Any payment for managerial, technical or consultancy services can qualify as FTS, regardless of whether the Indian recipient retains the underlying technical knowledge afterward.

Are payments to an employee treated as FTS?

No. Article 13(4) expressly excludes payments to an employee of the person making the payment from the FTS definition, whatever the nature of the services performed.

How is FTS different from royalty under this treaty?

Royalty (Article 13(3)) covers licensing existing rights, patents, or know-how, while FTS (Article 13(4)) covers managerial, technical or consultancy services. Both sit within the same Article 13(2) at the identical 20% rate for Denmark, which lowers the financial stakes of misclassification compared with treaties where royalty and FTS rates diverge.

What happens if the Danish service provider has a PE in India?

If the contract generating the fee is effectively connected with a permanent establishment or fixed base the Danish provider has in India, Article 13(5) disapplies the 20% cap, and the fee is taxed as business profits under Article 7 (or Article 15) instead.

Does the MLI affect FTS taxation under the India-Denmark DTAA?

The MLI's Principal Purpose Test applies to this treaty from FY 2020-21, since both India and Denmark treat it as a matched Covered Tax Agreement. Denmark reserved entirely against MLI Articles 12 to 14, so the MLI does not change the treaty's permanent establishment article or the FTS rate itself.