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India, Singapore amend tax treaty

by December 31, 2016 General
NEW DELHI: India and Singapore on Friday amended a decade-old double tax avoidance agreement (DTAA) that will allow the tax department to impose capital gains (tax) on investments routed through the island nation and plug a possible misuse of benefits.

Earlier this year, the government managed to get Mauritius and Cyprus to amend tax treaties that allowed it to impose capital gains tax and check alleged round-tripping of funds into the country some of which was said to be black money.

“This year on May 10 we had amended DTAA with Mauritius. Then in September we amended with Cyprus and today we amended the DTAA with Singapore… With these three… we have successfully stopped round tripping through this route,” finance minister Arun Jaitley said at a press conference.

In recent years, Singapore had emerged as a key source for foreign investors from across the globe to route funds into the country and in some cases it was the top originator of investments. Between April 2000 and September 2016, Singapore accounted for 16% of inflows with Mauritius topping the list with 33% of flows.

The latest move by the government seeks to bring parity although there are agreements with countries such as the Netherlands, France and South Korea where some additional benefits are available. Tax experts, however, said with the general anti-avoidance treaty in place, misusing these treaties would be tough.

Under the amended treaty with Singapore, capital gains tax will be imposed at 50% for two years starting April 2017, Jaitley said.

The minister said the earlier DTAAs with the three countries gave complete exemption from payment of tax on profits made through capital gains as there was no such levy in the host countries. The beneficiary did not pay any capital gains tax in India. “Therefore there was a reasonable apprehension that these agreements were misused for round tripping and bringing money back in country through this route,” he said, adding that 2016 has been significant and historic in getting these amended.

Through the revision in the treaty, “we have given a reasonable burial to the black money rule that existed.”

The finance minister said like the Mauritius pact, all investments will be grandfathered till March 2019. “Capital gains liability will be shared half and half and after that entire capital gain will come to India.” Also, Switzerland will begin sharing with India from 2019 information on all investment or accounts maintained in its banks post-2018. The CBDT had signed an agreement to this effect with Switzerland about two months back, he said.

These are “milestone in campaign against tax evasion and parking of money outside country,” he said. Jaitley said “the revisiting of these arrangements was extremely important and along with the battle of black money that is being fought currently in India, it is a very happy coincidence that by amending them, we have been able to give a reasonable burial to this black money route which existed”.

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