The governments of India and Italy have agreed to amend their bilateral Double Taxation Avoidance Convention in an attempt to boost trade and investment flows between the two countries.

India's Information and Broadcasting Minister, S. Jaipal Reddy announced last week that both sides agreed to incorporate certain proposals made by both the Italian and Indian governments through a protocol amending the existing agreement.

In the protocol, the Italian side had proposed to substitute the local income tax with IRAP tax (Regional Tax on Productive Activities) in the Convention.

The protocol also sets out broader rules concerning Permanent Establishments for taxation of services and insurance cover and deals with the tax treatment of business profits, air transport and shipping.

In order to have a uniform tax structure with all other European Union countries, the withholding tax rate under the DTAA has also been brought down to 10% in the case of dividends, interest and fees for technical services.