Cyprus and India will have a new double taxation avoidance agreement signed by September the latest, an insider in Nicosia told The Cyprus Daily on Thursday.
He dismissed reports in The Indian Express newspaper saying that Cyprus would be off the blacklist only when it agrees for a complete revamp of the double tax avoidance agreement (DTAA).
And that it is unlikely Nicosia will get off the list any time soon despite its repeated demands.
The insider said: “All requested information was sent to New Delhi by end of March, but they got into a pre-election campaign and the issue was stalled.”
He added: “Now that there is a new government in India and it is very pro-business oriented too we expect the matter to close by September the latest…The newly-drafted agreement has been sent to Cabinet for approval,” he added.
The insider also said that once Cabinet approval is granted, political intervention will be the next step to solving a ‘prolonged and unnecessary’ problem.
“Cyprus and India are traditional friends and this issue with the DTAA was only caused because of bad communication, it could have been avoided. It only affects negatively the best interests of Cyprus’ economy,” said the insider. Cyprus was blacklisted by India back in November with New Delhi accusing Nicosia of not providing information on tax evaders. The development became important in the wake of foreign investment coming from Cyprus.
According to India’s department of industrial policy and promotion, Cyprus is the seventh largest source of foreign direct investment in India, pumping in $557 million in February while $7.44 billion came in between April 2000 and March 2014.
With Cyprus being an EU member, from the global investment point of view, Indian companies can easily invest in central and eastern European countries or regions with which India does not maintain a treaty.
Cyprus, which signed a DTAA with India in 1994, was declared a ‘notified jurisdiction area’ under Section 94A of the Income-Tax Act.
This essentially meant enhanced reporting requirement for Indian entities transacting with entities situated in Cyprus while resulting in more tax outgo for them.
While payment made to a Cyprus-based person would be eligible for withholding tax of 30%, Indian taxpayers can’t claim deductions on transactions with entities based in Cyprus.