FTS Tax Rate Between India and Mexico Under DTAA

Quick answer: Under Article 12(2) of the India-Mexico DTAA, fees for technical services (FTS) are capped at 10% of the gross amount, versus India's domestic rate of 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). FTS is defined in Article 12(3)(b) as payments "as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel," other than payments covered by Articles 14 and 15. There is no "make available" clause — unlike the India-USA or India-UK treaties — so the definition reaches routine management fees, IT support, and consultancy payments regardless of whether technical knowledge is transferred. The treaty was signed 10 September 2007 and took effect for Indian withholding tax from 1 April 2011.

Key takeaways:

• FTS is capped at 10% under Article 12(2) — the same article and rate as royalties — versus a 20% domestic rate.
• No "make available" requirement: any managerial, technical or consultancy payment qualifies, including secondment of personnel.
• Payments covered by Article 14 (independent personal services) or Article 15 (dependent personal services) are expressly excluded from FTS.
• An unusual fallback source rule (Article 12(5)(b)) can locate FTS income in a state even where the standard payer-residence test does not.
• Import of Mexican services also attracts 18% GST under reverse charge, separate from the income-tax withholding.

Fees for Technical Services (FTS) Tax Rate Between India and Mexico

The India-Mexico Double Taxation Avoidance Agreement, signed 10 September 2007 and in force since 1 February 2010, taxes fees for technical services under the same article as royalties — Article 12 — at the identical 10% rate. Cross-border technical, managerial and consultancy payments are common between the two countries: Mexican engineering and manufacturing-technology firms advise Indian projects, Indian IT and business-process companies serve Mexican clients, and group companies second technical personnel in both directions.

A defining feature of Article 12(3)(b) is the absence of a "make available" clause. Under treaties that carry one — the USA and UK among them — a service fee is only FTS if the provider transfers technical knowledge, skill or know-how that the recipient can use independently in the future. The India-Mexico treaty imposes no such condition, so the FTS definition sweeps in far more service payments. Beacon Filing's tax advisory team can help characterise cross-border service payments correctly under this broader test. See also India-Mexico DTAA complete guide and 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), FTS paid to a non-resident is withheld at 20% (plus surcharge and cess), a rate the Finance Act 2023 doubled from the earlier 10% with effect from 1 April 2023. This applies to payments falling within section 9(7) of the Income-tax Act, 2025 (section 9(1)(vii) of the Income-tax Act, 1961).

DTAA Rate (With Treaty)

Article 12(2) caps the source state's tax on FTS, as on royalties, at 10% of the gross amount, provided the recipient is the beneficial owner. Because both categories sit in one article at one rate, an Indian payer does not need to draw a fine line between a royalty and an FTS payment for withholding purposes — both attract 10% either way, though correct characterisation still matters for the definitional exclusions discussed below.

Effective Tax Savings

An Indian retailer pays a Mexican consultancy USD 400,000 for a supply-chain optimisation engagement. Without the DTAA, TDS at 20% is USD 80,000. With the DTAA, TDS at 10% is USD 40,000 — a saving of USD 40,000, for which the Mexican firm claims a credit against its Mexican tax liability under Article 23.

Who Qualifies for the Reduced Rate

Beneficial Ownership Requirement

The Mexican service provider must be the beneficial owner of the fee, genuinely rendering the services itself rather than passing the engagement through to a third-country subcontractor with no independent economic role.

Tax Residency

The provider must be a resident of Mexico under Article 4, evidenced by a Tax Residency Certificate from Mexico's Servicio de Administración Tributaria (SAT).

No Permanent Establishment or Fixed-Base Connection

Article 12(4) withdraws the 10% cap where the FTS is effectively connected with a permanent establishment or fixed base the Mexican provider has in India — the fee is then taxed as business profits under Article 7 or under Article 14, at the ordinary corporate rate for foreign companies (35%, roughly 38.22% effective above INR 10 crore total income and roughly 37.13% between INR 1 crore and INR 10 crore once surcharge and cess are added).

Anti-Abuse: Article 28 Limitation of Benefits Plus MLI PPT

Both countries have ratified the MLI and listed each other as Covered Tax Agreements, so the MLI's Principal Purpose Test now supplements the treaty's pre-BEPS Article 28 Limitation of Benefits article for FTS flows as for every other income category. There is no Most Favoured Nation clause in the treaty or Protocol.

FTS-Specific Treaty Provisions Under Article 12

Definition of FTS (Article 12(3)(b))

The treaty defines fees for technical services as "payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel." This definition is notably broad for three reasons:

• No "make available" requirement: any payment for managerial, technical, or consultancy services qualifies as FTS, whether or not the recipient gains the ability to apply the underlying knowledge independently in future.
• Includes managerial services explicitly: management fees, corporate oversight charges, and shared-services allocations all fall within scope.
• Includes provision of personnel: secondment of technical or other staff between Indian and Mexican group companies is expressly covered.

Exclusions: Articles 14 and 15

Article 12(3)(b) carves out payments "mentioned in Articles 14 and 15" — independent personal services and dependent personal services (employment income) respectively — from the FTS definition. A payment properly characterised as salary to an individual employee, or as income from independent professional services taxed under Article 14's own fixed-base or 90-day tests, falls outside Article 12 entirely.

Deemed-Arising Rules (Article 12(5))

As with royalties, FTS is deemed to arise where the payer — including the State itself, a political sub-division, or a local authority — is resident, subject to the usual PE/fixed-base override. Article 12(5)(b) then supplies an unusual fallback source rule: where the standard payer-residence test in 12(5)(a) does not locate the FTS in either Contracting State, and the services were performed in one of them, the fee is deemed to arise there anyway. This broadens India's or Mexico's ability to tax FTS beyond the payer-based test most of India's other treaties rely on exclusively.

Arm's Length Rule (Article 12(6))

Where a special relationship between payer and recipient inflates the fee above what independent parties would have agreed, "the provisions of this Article shall apply only to the last-mentioned amount" — the arm's length portion. The excess is taxed under domestic law, engaging India's transfer pricing rules for intra-group service charges.

Documentation Required to Claim the Reduced Rate

Tax Residency Certificate (TRC) from SAT

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)

Where the TRC lacks prescribed particulars, Form 41 must be filed electronically, giving name, status, nationality, RFC number, and period of residential status.

Self-Declaration and Service Agreement

A self-declaration of beneficial ownership and no-PE status, the underlying service agreement, and invoices describing the scope of services should be retained. For related-party service charges, contemporaneous transfer pricing documentation supports the arm's length nature of the fee.

Withholding Procedure for Indian Payers

Section 393(2): 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 the time of credit or payment, whichever is earlier — 10% with complete DTAA documentation, 20% without it.

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

Before remitting the fee, the payer must file Form 145 electronically, and obtain a Chartered Accountant's Form 146 for remittances exceeding INR 5 lakh, referencing Article 12 and the 10% rate.

Section 395(1): Lower Withholding Certificate

The Mexican service provider can apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate authorising lower or nil withholding where its actual liability, after deductible expenses, is lower than the standard deduction rate.

GST on Import of Services

Separately from income-tax withholding, FTS paid to a Mexican service provider generally attracts Goods and Services Tax at 18% under the reverse-charge mechanism, payable by the Indian recipient and available as input tax credit. This GST liability sits alongside, not instead of, the Article 12 withholding.

Common Disputes and Practical Considerations

Broad FTS Scope Without a Make-Available Test

Because there is no make-available requirement, Indian tax authorities can characterise a wider range of Mexican service payments as FTS than would be the case under the India-USA treaty. Disputes typically turn on whether a payment is genuinely managerial, technical or consultancy in nature, rather than on whether knowledge was transferred.

Reimbursement of Secondment Costs

Where an Indian entity reimburses a Mexican group company for the salary cost of seconded personnel with no mark-up, several tribunals across India's treaty network have held pure reimbursements are not "consideration for services" and fall outside FTS; the Indian authorities frequently contest this where the arrangement lacks a clear economic-employer analysis. Because Article 12(3)(b) expressly includes "the provision of services of technical or other personnel," a Mexican secondment with any administrative mark-up is more likely to be treated as FTS in full.

Surcharge and Cess Over the Treaty Rate

As with royalties, whether surcharge and cess can be added over the 10% cap remains disputed in practice, notwithstanding ITAT rulings holding the treaty rate as an inclusive ceiling.

Practical Examples and Calculations

Example 1: Management Consulting Engagement

Consultores de México, S.C. advises an Indian retail chain on store-format redesign for a fee of USD 250,000. Without the DTAA, TDS at 20% is USD 50,000. With the DTAA, TDS at 10% is USD 25,000 — a saving of USD 25,000, credited against Mexican tax on the same income.

Example 2: Technical Personnel Secondment

Ingeniería Aplicada, S.A. seconds two process engineers to its Indian joint venture for a plant-commissioning project, with the Indian entity reimbursing salary costs of USD 180,000 plus a 5% administrative mark-up (USD 9,000). Because Article 12(3)(b) expressly includes the provision of technical personnel, the full USD 189,000 is treated as FTS, and 10% TDS (USD 18,900) applies on the gross amount rather than the 20% domestic rate.

Frequently Asked Questions

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

Article 12(2) caps fees for technical services at 10% of the gross amount, the same rate and article as royalties, versus India's domestic rate of 20% under section 207(2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961).

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

No. Article 12(3)(b) contains no make-available requirement, so any payment for managerial, technical or consultancy services qualifies as FTS regardless of whether technical knowledge is transferred to the Indian recipient — a broader scope than treaties like India-USA or India-UK.

What payments are excluded from the FTS definition?

Article 12(3)(b) excludes payments covered by Article 14 (independent personal services) and Article 15 (dependent personal services, meaning ordinary employment income). Genuine salary payments and income properly taxed under those two articles' own residence and duration tests fall entirely outside Article 12.

Are secondment and personnel-provision payments treated as FTS?

Yes. Article 12(3)(b) expressly includes "the provision of services of technical or other personnel" within the FTS definition, so secondment arrangements between Indian and Mexican group companies are generally taxed as FTS at 10%, especially where any administrative mark-up is charged.

Is GST also payable on FTS paid to a Mexican provider?

Yes. Import of services from Mexico generally attracts 18% GST under the reverse-charge mechanism, borne by the Indian recipient and available as input tax credit. This GST liability is separate from, and in addition to, the Article 12 income-tax withholding.

What documentation does a Mexican service provider need to claim the 10% rate?

A Tax Residency Certificate from SAT, Form 41 (formerly Form 10F) filed electronically, a self-declaration of beneficial ownership and no-PE status, and the service agreement describing scope of work. The Indian payer must file Form 145, and Form 146 for remittances exceeding INR 5 lakh.