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India To Renegotiate Tax Treaty With Singapore: Arun Jaitley
In recent years, Singapore has emerged as the favourite for foreign direct investment (FDI) inflows into India, with $10.98bn flowing through the country in the nine months leading up to April 2015, significantly higher than the $6.1bn that came through Mauritius. While attempts were made in the past as well to plug the loopholes in the three-decade old treaty, the successive governments were somehow bullied by the big boys of the stock market, who would threaten to nearly destabilise the Indian markets by engineering wild gyrations in the benchmark indices.
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India & Cyprus had signed the DTAA in 1994 and over Dollars 8 billion has been invested in India from Cyprus between 2000 and 2015. That, of course, will stop because the capital gains benefit will go away. We have summarized herein below some of the key changes to tax treaty as a result of the protocol. With introduction of a Service PE clause, such foreign companies would be liable to tax on their global income attributable to India. India had notified Cyprus as non-cooperative for failure to share adequate information with the Indian tax authorities. At times the tax is levied but at a very low rate. The Article 3 proposes to provide for taxation of FTS, through a new Article 12A to the Mauritius Tax Treaty.
The benefit of 50% reduction in tax rate during the transition period from 1st April, 2017 to 31st March, 2019 shall be subject to LOB Article, whereby a resident of Mauritius (including a shell or conduit company) will not be entitled to benefits of 50% reduction in tax rate, if it fails the main objective test and bonafide business test. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India. “India is one of the most-attractive emerging markets today”.
Grandfathering of investments: Grandfathering of investments made prior to April 1, 2017, reflects the Indian government’s commitment to provide certainty to taxpayers.
Short-term capital gains are taxed at 15% at present.
India will have to renegotiate the tax treaty with Singapore to extend the capital gains tax provisions of the recently-concluded tax pact with Mauritius, Finance Minister Arun Jaitley said on Monday. Now that these provisions under the India-Mauritius DTAA have been amended, the benefits under India- Singapore DTAA will also be affected.
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The Protocol will tackle the long pending issues of treaty abuse and round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.