India-Philippines DTAA: Complete Guide to the Double Taxation Avoidance Agreement

Quick answer: The India-Philippines DTAA caps dividends at 15% for a corporate shareholder owning at least 10% of the shares, or 20% (equal to India's domestic rate) otherwise. Interest is capped at 10% for financial institutions and insurers, or 15% otherwise. Royalties are capped at 15%, but only if the Philippine payer is Board of Investment-registered or the Indian payer holds a Government-approved collaboration agreement - otherwise there is no treaty cap at all. The Convention has no fees-for-technical-services article: service fees fall to Article 7 (business profits, PE-gated) or Article 23 (residence-only). Signed at Manila on 12 February 1990 and in force from 21 March 1994, the Philippines has never signed the MLI, so the treaty carries no PPT, no LOB article, and no synthesised text.

Key takeaways:

• Dividends: 15% for a corporate shareholder with at least 10% of the shares, 20% otherwise - a portfolio tier identical to India's domestic rate, so it delivers no rate relief
• Interest: 10% for financial institutions and insurers, 15% otherwise, with narrow exemptions
• Royalties: 15%, conditional on Board of Investment registration or Government approval - otherwise no cap
• No FTS article - service fees are business profits under Article 7, PE-gated
• No LOB, no PPT, no MLI coverage - anti-abuse rests entirely on India's domestic GAAR

Overview of the India-Philippines DTAA

The Double Taxation Avoidance Agreement between India and the Philippines was signed at Manila on 12 February 1990 and entered into force on 21 March 1994, after both governments notified each other of completing their ratification procedures under Article 29. India notified the treaty domestically by Notification No. G.S.R. 173(E), dated 2 April 1996, later amended by Notification No. S.O. 125(E) dated 2 February 2005.

One date trap: the Income Tax Department's text prints "Date of Signature 1996" - wrong, since a treaty cannot be signed after it enters into force. India's own deposited MLI instrument lists this Convention as an original agreement signed on 12-02-1990, confirming the correct date; "1996" appears to be the notification year bleeding into the signature field.

The Convention runs to 30 articles with no arbitration provision, accompanied by a four-paragraph Protocol. A single 2005 amendment substituted the 183-day test in Article 15(1)(b); no further protocol has been signed since.

Who the Treaty Covers

Article 1 applies the Convention to residents of one or both Contracting States. Article 2 covers, on the Indian side, income-tax including surcharge, plus the now-repealed Companies (Profits) Surtax Act, 1964; on the Philippine side, simply the income-taxes the Philippine Government imposes. There is no wealth or capital tax article - Article 22 is reserved for professors and teachers.

Residence and the Tie-Breaker Rules

Article 4 defines a resident by domicile, residence, place of management "or any other criterion of a similar nature" under domestic law, excluding a person taxable only on source-country income. Dual-resident individuals are resolved through the standard cascade: permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement. A non-individual resident in both States is resolved by place of effective management. Because the treaty is not MLI-covered, Article 4(3) operates exactly as originally drafted, with no MLI collaborative POEM overlay.

Permanent Establishment: Broader Than the OECD Model in Several Places

Article 5 defines a permanent establishment (PE) as a fixed place of business carrying on an enterprise's business, including the standard list of offices, branches, factories and workshops. Several features go beyond the OECD baseline:

• Construction PE: a site, project, or connected supervisory activity becomes a PE only after more than six months (Article 5(2)(h)); there is no separate "installation" or "assembly" category and no connected-projects aggregation rule.
• No services PE at all. No 90-day or 183-day services test; services create a PE only via a fixed place of business or an agency PE.
• Exploration alone is a listed PE (Article 5(2)(g)), broader than the OECD Model. A mine, oil or gas well, quarry or other extraction site (5(2)(f)) is separately listed, with no time threshold.
• A warehouse storing goods for others is a listed PE (5(2)(i)), even though an enterprise's own storage or delivery stock is excluded under 5(3)(a)-(b).
• Insurance PE (5(5)): an insurer has a PE - except for reinsurance - if it collects premiums or insures risks through an employee or dependent representative.
• Agency PE (5(4)) covers habitual authority to conclude contracts; a habitually maintained stock of goods from which the agent regularly delivers; or an agent who manufactures or processes goods for the enterprise.
• Independent-agent status (5(6)) is lost only where two conditions hold together: activities devoted wholly or almost wholly to the enterprise, and transactions shown not to have been made on arm's-length terms.

Business Profits, Shipping and Air Transport

Article 7 taxes business profits only in the residence State unless there is a PE in the other State, in which case attributable profits may be taxed there. Protocol paragraph 2 restricts Article 7(3) expense deductions to whatever limits domestic law already imposes.

Shipping (Article 9) and air transport (Article 8) are two separate articles with identical mechanics, and neither gives an exclusive residence-taxation right: profits are "taxable in" the residence State, not "taxable only in", so the source State may also tax, but the tax must be reduced by 40% and capped at the lowest rate of Philippine tax charged on the same kind of profit by a resident of a third State - a ceiling that names Philippine tax in both articles, asymmetric drafting to be read literally. Protocol paragraph 3 folds the Branch Profit Remittance Tax into this rate, and both articles extend to pool and joint-business participations. Protocol paragraph 4 carries the treaty's only most-favoured-nation mechanism, and it is confined to these two articles: if the Philippines later agrees a lower or nil rate with a third State, the two Governments undertake to review Articles 8 and 9. It is a promise to consult, not an automatic rate reduction, and it reaches nothing in the dividend, interest or royalty articles.

Dividends, Interest and Royalties: The Three Passive-Income Articles

Dividends (Article 11) are capped at 15% where the beneficial owner is a company owning at least 10% of the shares - not capital, not voting power - and 20% in every other case. The 20% tier equals India's domestic rate, so an individual or sub-10% corporate shareholder gets no rate relief at all; its only value is capping surcharge and cess.

Interest (Article 12) is capped at 10% for a financial institution, including an insurance company, and separately at 10% (one-way) on Philippine tax over interest a Philippine company pays an Indian resident on public bond issues. All other interest is capped at 15%. Article 12(3) exempts interest arising in one State where it is derived and beneficially owned by the Government, a political subdivision, a local authority or the Central Bank of the other Contracting State, plus any lending institution specified in letters exchanged between the competent authorities (no such list is verified, so none can be named); a second, approval-based exemption reaches any other resident of the other State only to the extent the source-State Government approves, and only where that Government has approved the transaction giving rise to the debt-claim.

One domestic-law trap sits underneath the interest caps. India's 20% comparator is the section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) rate on interest on money borrowed in foreign currency. Rupee-denominated interest paid to a Philippine resident falls outside that entry and takes the residual "rates in force" under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) — 30% for non-resident individuals and 35% for foreign companies — so the 10% and 15% treaty caps are worth considerably more on a rupee loan than the 20% headline suggests.

Royalties (Article 13) are the treaty's most misunderstood provision. Article 13(2) caps the rate at 15%, but only "provided that such royalties are payable... by an enterprise which is registered with the [Philippine] Board of Investment" or, for an Indian payer, "in pursuance of any collaboration agreement approved by the Government of India". If neither condition is met, Article 13(1) leaves the royalty to full domestic-law taxation - no fallback cap. Article 13(3)'s definition is broad: copyright (including films and broadcasting tapes), patents, trademarks, designs, secret formulas, and equipment use or know-how - with no OECD-style equipment carve-out.

No FTS Article: How Technical and Service Fees Are Actually Taxed

The words "fees for technical services" do not appear anywhere in this Convention or its Protocol. The article sequence runs Dividends (11), Interest (12), Royalties (13), Capital Gains (14), with no combined royalty-and-FTS article and no separate Article 12A.

Technical, managerial and consultancy fees paid by an Indian payer to a Philippine enterprise are business profits under Article 7 - taxable in India only if the enterprise has a PE here, on attributable profits. Fees to an individual professional instead fall to Article 23, Other Income, a single paragraph in pure OECD residence-only form: income "not dealt with in the foregoing Articles... shall be taxable only in that State", with no PE carve-out and no UN-style source limb. There is no gross FTS withholding under this treaty at any rate - never import a figure from another Indian treaty here.

This does not make Indian withholding automatically nil. Domestic law still treats such fees as FTS by default, taxable under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) at 20%, unless the recipient claims the treaty position with the required documentation (Form 41 and a TRC, below), else a payer may withhold at the domestic rate and leave the recipient to seek a refund.

Capital Gains

Article 14 allocates taxing rights by asset type, unusually seller-favourably for an Indian treaty:

There is no general share-alienation paragraph. A Philippine resident selling shares in an ordinary, non-land-rich Indian company is taxed only in the Philippines under Article 14(5) - India has no treaty right unless the land-rich test in 14(4) is met. That test turns on the word "principally" alone: there is no percentage threshold, no look-back period and no de-minimis rule, and it extends to partnership and trust interests, not just shares. Because there is no LOB article and no MLI coverage (no PPT, no 365-day land-rich look-back), the only Indian counterweight to Article 14(5) is domestic GAAR under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961) and Chapter XI.

Employment, Students, Teachers and Other Distinctive Rules

• Pensions and annuities (Article 20) are taxable only in the recipient's residence State.
• Students (Article 21) get an employment-income exemption capped at "Rs. 15,000 or its equivalent in Philippine currency" per year, for at most three consecutive years - an unindexed 1990 figure that the competent authorities may review under Article 21(3).
• Professors and teachers (Article 22) get a two-year exemption on teaching or research remuneration at a university, college, school or other "approved institution" (22(1); the term is defined in 22(4)); research undertaken primarily for the private benefit of a specific person is excluded (22(2)).
• Entertainers and athletes (18(3)-(4)) are taxable only in the residence State where the performance is given under a special cultural-exchange programme between the two Governments and is substantially supported from public funds, a statutory body or a certified non-profit - a two-part test that covers both the performer and a company to which the fee accrues.
• Protocol paragraph 1, a citizen-taxation saving clause: nothing stops either State taxing its own citizens resident abroad under its own law, and - unusually - no credit is given for that domestic tax.

Relief From Double Taxation and Tax Sparing

Article 24 gives India an ordinary tax credit for Philippine tax, capped at the Indian tax attributable to the same income (24(2)). Article 24(3) adds tax sparing: "Philippine tax payable" includes tax that would have been paid but for an exemption or reduction under the Convention "and the special incentive laws designed to promote economic development in the Philippines". Unlike several of India's other tax-sparing clauses, this one carries no sunset date - Board of Investment and PEZA incentives can still generate a spared Indian credit today. Articles 24(4)-(5) mirror the relief for the Philippines.

Anti-Abuse: No LOB, No PPT, and India's Domestic GAAR

This is one of the more permissively-drafted treaties left in India's network. There is no limitation-of-benefits article, no principal-purpose test, and no shell or conduit test anywhere in the Convention or Protocol. The only treaty-native guards are beneficial-ownership requirements in Articles 11(2), 12(2) and 13(2), the special-relationship clauses in Articles 12(7) and 13(6), and Article 10 on associated enterprises.

India separately listed this Convention under the MLI, but a treaty is Covered only when both parties list it, and the Philippines has never signed the MLI at all. The India-Philippines DTAA is therefore not a Covered Tax Agreement: no Principal Purpose Test, no collaborative POEM tie-breaker, no anti-fragmentation rule, no agency-PE modification, and no 365-day look-back on the Article 14(4) land-rich test. India's own MLI notifications here are unilateral and inoperative, and no synthesised text has been published. Every abusive-arrangement question falls back on domestic GAAR.

How to Claim Treaty Benefits

Claiming a reduced rate follows India's standard chain, with one Philippine-specific gap:

1. Tax Residency Certificate: the non-resident must hold a valid TRC under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961). The Philippine issuing office is not independently verified here; confirm it with a Philippine tax adviser.
2. Form 41 (formerly Form 10F): e-file Form 41 with status, nationality, tax identification number and period of residence - filing it activates the treaty position at source; it is not automatic.
3. Payer compliance: the Indian payer withholds at the treaty rate where a cap applies and files Form 145 (formerly Form 15CA) before remitting; Form 146 (formerly Form 15CB), a CA certificate, is needed only for Part C of Form 145 - a taxable remittance above INR 5 lakh made without a section 395 certificate from the Assessing Officer.
4. Statutory basis: the TDS obligation sits in section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), read with the treaty-more-beneficial rule in section 159(4) (section 90(2) of the Income-tax Act, 1961).
5. Lower or nil deduction certificate: where the rate is in doubt, the Philippine recipient applies for a certificate in advance under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961); the Indian payer's own route is section 395(2) (section 195(2) and (3) of the Income-tax Act, 1961).

Worked Example

An Indian subsidiary pays its 12%-shareholder Philippine parent and an unregistered Philippine vendor:

• Dividend of INR 1,00,00,000 to the 12%-shareholder parent: Article 11(2)(a) applies, so TDS is withheld at 15% = INR 15,00,000, and INR 85,00,000 is remitted. At an 8% holding, Article 11(2)(b) would apply instead at 20% (INR 20,00,000) - no relief over the domestic rate.
• Royalty of INR 50,00,000 for a software licence to the unregistered vendor: since neither condition of Article 13(2) is met, the 15% cap does not apply, and Article 13(1) leaves the payment to India's domestic rate of 20% under section 207(2) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) - TDS of INR 10,00,000, not the INR 7,50,000 a payer might wrongly assume.

Common Mistakes

• Assuming the 15% royalty cap applies to every payment. It needs Board of Investment registration or a Government-approved collaboration agreement - most licences meet neither.
• Quoting an FTS rate for the Philippines. There is no FTS article; service fees are business profits (PE-gated) or Article 23 residence-only income.
• Treating the 15% dividend tier as available to any parent. It needs at least 10% of the shares, and only for companies, not individuals.
• Assuming the MLI's PPT applies. The Philippines has never signed the MLI - only domestic GAAR reaches abusive structures here.
• Skipping Form 41. Treaty benefit at source is available only once the declaration is filed.

Frequently Asked Questions

What is the withholding tax rate on dividends under the India-Philippines DTAA?

Article 11 caps dividends at 15% where the beneficial owner is a company holding at least 10% of the shares of the paying company, and at 20% in every other case. The 20% tier matches India's domestic rate exactly, so it offers no rate relief beyond capping surcharge and cess for smaller or individual shareholders.

Does the India-Philippines DTAA have a fees-for-technical-services article?

No. The Convention has no FTS article at all - the words do not appear anywhere in the treaty or Protocol. Technical, managerial and consultancy fees paid to a Philippine enterprise are business profits under Article 7, taxable in India only if the enterprise has a permanent establishment here; other cases fall to the residence-only Article 23. No FTS withholding rate exists under this treaty.

Is the 15% royalty rate always available?

No. Article 13(2)'s 15% cap is conditional: it applies only if the Philippine payer is registered with the Philippine Board of Investment, or the Indian payer is acting under a collaboration agreement approved by the Government of India. If neither condition is met, Article 13(1) leaves the royalty to India's full domestic rate of 20%.

Does the MLI modify the India-Philippines DTAA?

No. India listed this treaty under the Multilateral Instrument, but the Philippines has never signed the MLI at all, so the treaty is not a Covered Tax Agreement. There is no Principal Purpose Test, no MLI-driven anti-fragmentation rule, and no 365-day look-back on the land-rich share test - anti-abuse rests entirely on India's domestic GAAR.

How are capital gains on Indian shares taxed for a Philippine resident?

Article 14(5) is residence-only for any property not covered by paragraphs 1 to 4, and there is no general share-alienation paragraph. A Philippine resident's gain on shares of an ordinary Indian company is therefore taxable only in the Philippines, unless the company is land-rich under Article 14(4) - a test based purely on the word "principally", with no percentage threshold.

What documents does a Philippine recipient need to claim treaty benefits in India?

A Tax Residency Certificate under section 159(8) of the Income-tax Act, 2025, an electronically filed Form 41 (formerly Form 10F) declaring status and residence, and the Indian payer's Form 145 (formerly Form 15CA) for the remittance, with Form 146 (formerly Form 15CB) needed only where Part C applies: a taxable remittance above INR 5 lakh made without a section 395 certificate. Without Form 41, the treaty rate is not applied automatically at source.