Revisiting Non-Discrimination Clause of The India – Us Tax Treaty in Light of India’s Corporate Tax Rate Reduction

Tax complexity itself is a kind of tax - Max Baucus, US Senator

This Article seeks to juxtapose the principle of non-discrimination with Article 14(2) of the India - US tax treaty and analyse its fallout. The combined reading of the two provides for the applicability of different tax rates imposed on a permanent establishment of a US corporation vis-à-vis a domestic corporation in India. However, the treaty posits that the tax rate differential shall not exceed fifteen percentage points. In this Article, the author argues that with the reduction of the corporate tax rate in India (albeit through an election), the concession of fifteen percentage points provided by the United States stands breached. Sequitur, the full force of principles of non – discrimination may be applicable notwithstanding the carve-out of Article 14(2).

I. INTRODUCTION

On September 20, 2019 the Government of India enacted a significant reduction of the corporate income tax rate for domestic corporations. On the statute, it was introduced as an election where the domestic corporations could elect to be taxed at 22 per cent¹ which was earlier either 25 per cent or 30 per cent² effective taxable year beginning April 1, 2019. On making this election, the corporation would forgo majority of the tax exemptions and incent