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India Plans To Revise Double Tax Treaties

Thursday, August 13, 2009

India is revising its double taxation avoidance treaties, especially those which were concluded prior to 2004. Its objective is to renegotiate anti-abuse provisions. The latest Finance Act will also allow new treaties to be negotiated with non-sovereign territories.

There is particular concern that the treaty with Mauritius provides for exemption of capital gains tax on sales of shares. In a written parliamentary answer, amendments to this particular treaty were said to be planned to "prevent its misuse for avoiding taxes and enhance exchange of information, including banking information." Other treaties entered into prior to 2004 are also weak in their anti-abuse provisions believes the government; these include agreements with the Netherlands, Australia, Cyprus, and the US. The parliamentary written answer recorded that 60% of Indian foreign investments in the last year involved countries listed as 'tax havens', the main ones cited being Mauritius, Cyprus, and Singapore.

Foreign direct investment into India is also largely routed through countries such as Mauritius and Bermuda, the reasons for which the parliamentary statement also attributed to tax optimisation. Bermuda is one of the non-sovereign jurisdictions for which no double taxation treaty was possible until the present Finance Act. The main aim of these new treaties will be to provide exchange of tax information, and could also include such territories as the Cayman Islands, Hong Kong, and Macau. Singapore already has a double taxation avoidance treaty with India, effective since 2004, which contains the more up-to-date anti-avoidance provisions; however, a likely priority would be to seek to include tax information exchange provisions in this treaty.