Royalty 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 royalties paid to a Danish beneficial owner at 20% of the gross amount — in the same paragraph, and at the same rate, as fees for technical services. India's own domestic rate under section 207(2) of the Income-tax Act, 2025 is also 20%, so the treaty offers no rate reduction today; its value lies in capping the rate against any future increase and in Indian tribunals' general treatment of treaty caps as inclusive of surcharge and cess.

Key takeaways:

• 20% cap on royalties under Article 13(2) — the same paragraph and rate that governs FTS
• Matches India's domestic 20% rate under section 207(2) of the Income-tax Act, 2025 — a cap only, no present-day saving
• Covers copyright (literary, artistic, scientific, film/tape), patents, trademarks, designs, secret formulas, equipment use, and industrial/commercial/scientific know-how (Article 13(3))
• Royalty connected with a Danish PE or fixed base in India is taxed as business profits under Article 7 or 15, not at 20%
• No 'make available' clause and no MFN clause in this treaty

Royalty 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, addresses royalties inside a single combined provision — Article 13, titled "Royalties and Fees for Technical Services" — rather than the OECD Model's separate Article 12. This is a shifted-numbering treaty (also covering capital, not just income), and both royalties and FTS share the same 20% cap and the same paragraph.

For the treaty's history and PE rules, see the India-Denmark DTAA complete guide; for the fees-for-technical-services rules specifically, see our FTS tax rate page; 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. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961), royalties 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 royalties at 20% of the gross amount, provided the recipient is the beneficial owner. Because this exactly matches the current domestic rate, the treaty produces no reduction today — but Indian tribunals have generally treated a DTAA cap as inclusive of surcharge and health & education cess, so the 20% treaty ceiling can still edge out the domestic rate's effective cost once cess is added, and the cap protects Danish licensors against any future increase above 20%.

No MFN Clause

Unlike some of India's other treaties, the India-Denmark DTAA carries no Most Favoured Nation clause. A lower royalty rate negotiated in a later India treaty with a third country does not automatically flow through to Denmark; any change would require renegotiating this treaty directly.

Who Qualifies for the 20% Rate

Beneficial Ownership

Article 13(2) requires the recipient to be the beneficial owner of the royalty. A conduit licensing entity with no real rights over the underlying IP, obligated to pass the royalty on to a third-country owner, cannot claim the treaty rate.

Tax Residency Certificate from Skattestyrelsen

The Danish licensor 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 by both countries on 7 June 2017, is in force for India from 1 October 2019 and Denmark from 1 January 2020, making this a matched Covered Tax Agreement on which the Principal Purpose Test applies from FY 2020-21. The treaty itself has no Limitation of Benefits article. Denmark's separate reservation against MLI Articles 12 to 14 — easily confused with this treaty's own Article 13 on royalties — changes only the treaty's permanent establishment definition (Article 5), not the royalty rate or the PPT's application. India's domestic GAAR remains an additional backstop against treaty-shopping structures routing IP licensing through Denmark.

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 right, property or contract generating the royalty is effectively connected with that PE or fixed base. The royalty is then taxed as business profits under Article 7, or under Article 15.

Royalty-Specific Treaty Provisions Under Article 13

Definition of Royalties (Article 13(3))

"Royalties" means payments of any kind for the use of, or right to use, any copyright of literary, artistic or scientific work — including cinematograph film or films, or tapes used for radio or television broadcasting — any patent, trademark, design or model, plan, secret formula or process, or for the use of, or right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience (know-how).

Article 13(1): Residence-State Taxation

Royalties 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 royalty, but the tax on the beneficial owner cannot exceed 20% of the gross amount — the same cap and paragraph applied to fees for technical services.

Article 13(6): Source Rule

Royalties are deemed to arise where the payer is resident. If the payer has a PE or fixed base in a State for which the royalty obligation was incurred, and the royalty is borne by that PE or fixed base, it 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 royalty above an arm's-length amount, the 20% cap applies only to the arm's-length portion; the excess remains taxable under domestic law, a point closely tied to transfer pricing scrutiny of related-party licensing.

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 Licence Agreement

A self-declaration of beneficial ownership and no-PE status, together with a copy of the licence or technology-transfer agreement, supports the classification of the payment as a royalty under Article 13(3) rather than as some other income category.

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 licensee deducts tax at source at payment or credit, whichever is earlier, at 20% (whether under the treaty or domestic law, since both figures are identical).

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

Before remitting the royalty 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 licensor expecting a lower actual tax liability — for example where only part of a bundled payment is genuinely royalty — 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

Software Payments: Not Royalty

Following the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt Ltd v. CIT (2021), the supply of standard, shrink-wrapped software does not amount to a transfer of copyright and is therefore not "royalty" under Article 13(3) or India's domestic law. This principle applies to Danish software vendors just as it does under any other Indian treaty with a similarly worded copyright definition.

Know-How vs Services

Article 13(3)'s reference to "information concerning industrial, commercial or scientific experience" draws a narrow but important line: licensing existing know-how or a process is a royalty, while performing a bespoke technical service using the licensor's expertise is more likely to fall under the FTS limb of the same Article 13(2) — which happens to carry the identical 20% cap for Denmark, reducing the practical stakes of the classification dispute compared with treaties where royalty and FTS rates differ.

Surcharge and Cess Over the Treaty Rate

Multiple Income Tax Appellate Tribunal rulings treat a DTAA rate as an all-inclusive ceiling with no surcharge or cess added on top, though the tax administration does not always apply this position at the assessment stage — a live area of dispute even though the headline treaty and domestic figures are identical.

Transfer Pricing on Royalty Rates

Related-party royalty rates are routinely tested against comparable uncontrolled transactions; an above-market rate can be disallowed as a deduction for the Indian payer regardless of the treaty cap.

Practical Examples and Calculations

Example 1: Patent Licence for Manufacturing Technology

Aarhus Industri A/S, a Danish engineering company, licenses a patented process to an Indian manufacturer for an annual royalty of DKK 8 million.

• Without DTAA: TDS at 20% (domestic) = DKK 1.6 million.
• With DTAA (Article 13(2)): TDS at 20% = DKK 1.6 million — identical, since both rates match.
• Practical value of the treaty: the 20% figure cannot rise above that level for Aarhus Industri without a treaty renegotiation, even if India's domestic rate is increased again.

Example 2: Trademark Licence Connected with a PE

A Danish consumer-goods company licenses its trademark to its own Indian branch (a PE). Because the licence is effectively connected with that PE, Article 13(5) redirects the royalty from the 20% cap to Article 7, taxing it as ordinary branch business profits — potentially at the 35% foreign-company rate on a net-profit basis, rather than 20% gross.

Frequently Asked Questions

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

Article 13(2) caps royalties paid to a Danish beneficial owner at 20% of the gross amount — the same paragraph and rate that governs fees for technical services. 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.

Why is the royalty rate the same as India's domestic rate?

The domestic royalty withholding rate doubled from 10% to 20% under the Finance Act 2023, matching the 1989 treaty's own long-standing 20% cap. Since the two figures now coincide, the treaty's practical value is limiting any further increase and, per general ITAT practice, treating the cap as inclusive of surcharge and cess.

Are software licence payments treated as royalty under this treaty?

Not automatically. Following the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt Ltd v. CIT (2021), the sale of standard, shrink-wrapped software does not involve a transfer of copyright and is not royalty under Article 13(3). Customised software or source-code licensing may still qualify as royalty.

Does the India-Denmark DTAA have a 'make available' clause for FTS that affects royalty classification?

No. Article 13 has no 'make available' requirement for either limb, and royalties and FTS share the same 20% cap under Article 13(2) — which reduces the practical stakes of disputes over whether a payment is a royalty or a fee for technical services under this particular treaty.

What happens if the Danish licensor has a PE in India?

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

Does the MLI affect royalty 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. However, Denmark reserved entirely against MLI Articles 12 to 14, so the MLI does not change the treaty's permanent establishment article or the royalty rate itself.