Amended DTAA with Singapore
Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests.India secured amendments to the Double Taxation Avoidance Agreement (DTAA) with Singapore, effectively closing one route of laundering domestic black money by ?round-tripping? it from countries like Mauritius, Cyprus and Singapore.
Long drawn efforts
The Centre had been trying to renegotiate the DTAA with Mauritius since 1996 and finally got a deal mid-year last, and since the Singapore tax treaty was based on the same terms as Mauritius, efforts were afoot to re-negotiate the pact with Singapore. A similar treaty with Cyprus was amended in November, 2016.
Investments made before March 31, 2017, will be grandfathered, and after that, for two years, the capital gains will be shared half and half between the country of residence of investor and India. Post-2019, the entire capital gains becomes exclusive to India.
A significant apprehension about these pacts was the complete exemption of taxes on capital gains that investors could utilise in the name of double tax avoidance as these three countries had no capital gains taxes.
The India-Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 1st April, 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company. This will curb revenue loss, prevent double non-taxation and streamline the flow of investments.
In order to provide certainty to investors, investments in shares made before 1st April, 2017 have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol.
Also, a two year transition period from 1st April, 2017 to 31st March, 2019 has been provided during which capital gains on shares will be taxed in source country at half of normal tax rate, subject to fulfillment of conditions in Limitation of Benefits clause.
The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India?s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases.
The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion.