India revises Double Taxation Avoidance Agreement with Singapore
By Statesman News Desk
31 December 2016

NEW DELHI (The Statesman/ANN) - India has revised its double taxation agreement with Singapore to reduce revenue losses due to the evasion of taxes on capital gains.

After amending its tax treaties with Mauritius and Cyprus earlier this year, India revised its Double Taxation Avoidance Agreement (DTAA) with Singapore, with the aim of ending double non-taxation and curbing revenue losses owing to the evasion of taxes on capital gains.
 
In line with the changes in earlier revised treaties with the two other countries, India and Singapore have amended the Third Protocol of the India-Singapore DTAA, with effect from Apr 1, 2017, to provide for source-based taxation of capital gains arising from the transfer of shares in a company as against residence-based taxation of capital gains at present, according to a release from the finance ministry. 
 
As per the revised DTAA, investments in shares made before Apr 1, 2017, have been grandfathered, subject to fulfilment of conditions in the Limitation of Benefits (LoB) clause as per the 2005 Protocol.

Moreover, a two-year transition period from April 2017 to March 31, 2019, has been provided during which capital gains on shares will be taxed in the source country at half the normal tax rate, subject to fulfilment of conditions in the LoB clause.
 
Finance Minister Arun Jaitley stated that the government has successfully stopped the roundtripping of black money through the routes of Mauritius, Cyprus and Singapore. 

“There was a reasonable apprehension that these (double taxation) agreements were being used for the roundtripping of domestic black money, organising its flight outside the country and bringing it back into the nation through these three routes since there has been a significant effort by the government of India to eliminate, wherever it can, the possibility of usage of black money in India. 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 that existed,” he said.
 
The finance minister said that similar to the Mauritius pact, all investments will be grandfathered until March 2019. 

“Capital gains liability will be shared half and half, and thereafter, the entire capital gain will come to India,” he said.
 
While gains on the sale of shares held for less than 12 months are treated as short-term capital gains and attract a 15 per cent short-term capital gains tax, the gains on the sale of shares after holding for 12 months are treated as long-term capital gains and currently attract zero tax.
 
The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases, the release said. 

“This is a taxpayer-friendly measure and is in line with India’s commitments under the Base Erosion and Profit Shifting Action Plan to meet the minimum standard of providing Mutual Agreement Procedure access in transfer pricing cases. The Third Protocol also enables the application of domestic law and measures concerning prevention of tax avoidance or tax evasion,” it said.
 
“The press release does not have details on whether there is also a reduction in the rate of withholding tax on interest to 7.5 per cent as in the case of Mauritius. This will be a critical aspect before there can be complete parity between the two treaties. Overall, the outcome is on expected lines and with the narrative around GAAR and BEPS taking centre stage, the changes are also in line with the global tax policy,” tax experts said.

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