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India Cyprus DTAA Proposed Amendment in line with Mauritius Tax Treaty

Income Tax - Direct Tax Code - DTC - By: - CA Rohit Gupta - Dated:- 3-9-2016 - India Cyprus Tax Treaty set for revision with Source based taxation of Capital Gains; Retrospective removal of Cyprus from Blacklisting notification The Union cabinet recently approved the revised double taxation avoidance agreement (DTAA) with Cyprus. The new agreement, which will replace the 1994 treaty, will enable Indian authorities to tax capital gains on investments routed through Cyprus; it will also lead to th .....

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g to distortion of financial and real investment flows by artificial diversion of various investments from their actual countries of origin, for avoiding tax. As in the case of Mauritius, this amendment will deter such activities. The proposed DTAA provides for source based taxation of capital gains on transfer of shares, instead of residence based taxation as provided in the existing DTAA. The revised version will give India right to tax on capital gains arising from Indian shares, taxation of .....

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ess income. Indian tax authorities will be able to levy capital gains tax on sale of shares by firms based in Cyprus after April 1, 2017, as there is a grand fathering provision in the agreement. A grandfathering clause provides for an old rule to apply to existing cases and a new rule to future ones. All existing investments, including those made up to 31 March 2017, have been sought to be grandfathered like the Mauritius Treaty. However, Mauritius treaty additionally provides for 50% capital g .....

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ther in equity or debt will be subject to India s new GAAR provisions. The agreement provides clarification about taxation of dividends in India that are subjected to dividend distribution tax, and clarifies that provisions on assistance in collection of taxes shall not be construed to impose any obligation that is at variance with the laws, practices or public policy of a contracting state. It also provides for a revised provision for exchange of information that would enable the use of informa .....

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x of 30%. No deduction in respect of any other expenditure or allowance arising from a transaction with a person in Cyprus, or a payment made to a financial institution, is allowed unless the assessee provides the required documents. If an assessee enters into a transaction with any entity in Cyprus, it is treated as an associate enterprise and the deal as an international transaction attracting transfer pricing regulations. If the blacklisting notification is withdrawn with retrospective effect .....

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