India, Cyprus sign revised DTAA to ease tax collection

The Dollar Business Bureau

India and Cyprus have signed a revised agreement for Avoidance of Double Taxation and the Prevention of Fiscal evasion (DTAA) with regards to taxes on income, together with its Protocol.

The agreement was signed on Friday in Nicosia and will replace the prevailing DTAA which was signed between the two countries on June 13, 1994.

On behalf of India, Ravi Bangar, High Commissioner of India to Cyprus and on behalf of Cyprus, Harris Georgiades, the Minister of Finance, have signed the protocol. 

“New DTAA provides for source based taxation of capital gains arising from alienation of shares, instead of residence based taxation provided under the existing DTAA. However, a grandfathering clause has been provided for investments made prior to 1st April, 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident,” said an official release.

The revised agreement will provide for assistance for collection of taxes between the two countries. It also revised the provisions related to the exchange of information in accordance with accepted global standards, which will facilitate exchange of banking information and permit the use of such type of information for the purposes apart from taxation with the prior nod of the competent authorities of the nation giving the information, it said.

In the new agreement, the scope of permanent establishment has been expanded. It also cuts the tax rate on the royalty to 10% from the current rate of 15% in the nation from which the payments are done, in accordance with the rate of tax under tax laws of India, the release added.

In addition, the new agreement updates the other provisions in line with the global standards and consistent Indian policy with regard to tax treaties. 

The new DTAA will come into effect after the completion of required internal procedures between the two countries and is likely to come into force in India with regards to income derived in financial years starting on or after April 1, 2017.