Dividend cuts; wider tax powers: Report emerges on what India and France gain in treaty revamp

India and France are close to finalising a revised tax treaty that reshapes how dividends, capital gains and services are taxed, according to a Reuters report citing confidential Indian government documents.

Under the proposed changes, dividend tax for French parent companies holding over 10% in Indian subsidiaries will be cut to 5% from 10%, potentially saving large firms millions. However, minority French investors with holdings below 10% will face a higher dividend tax of 15%. Reuters noted that the changes could affect companies such as Capgemini, Sanofi, Danone and L’Oreal, all of which have expanded in India.

In return for the dividend relief, India will gain broader rights to tax share sales by French investors, removing the current 10% ownership threshold. “The new treaty will provide for full source-based taxation rights in respect of capital gains on equity shares (in India),” one Indian government document said, according to Reuters.

A major shift is the removal of the ‘most favoured nation’ clause, which had given France preferential tax treatment. Reuters quoted an official saying disputes over the clause led to “tax uncertainty and protracted litigation”.

India also agreed to narrow taxation of fees for technical services, easing the burden on French firms offering consultancy and support services. The treaty still requires cabinet approval and is expected to be signed in the coming weeks.