India’s Tax blacklist has seen some modification. Cyprus has been formally removed from India’s tax blacklist. It will not be considered as ‘non-cooperative’ jurisdiction for income tax purposes.
The Central Board of Direct Taxes (CBDT) has issued a notification regarding it. It has rescinded the executive order blacklisting the island nation from November 1, 2013.
Cyprus is known to a popular tax haven nation. It was the only country to have been blacklisted by India as a non-cooperative jurisdiction. The action was taken due to lack of effective exchange of information.
This latest development will surely bring delight to both Indian as well as Cyprus investors. The CBDT move should relieve the Indian taxpayers’ worries who are transacting in Cyprus.
Abhishek Goenka , Partner, Direct Tax, PwC said that “this will come as a big relief to investors and Indian companies that have raised capital from Cyprus investors. However, this latest CBDT move is not retroactive and that comes as a big dampener.”
Recently a tax treaty has signed between both the countries. The Centre’s move to remove it from tax blacklist comes on the heels of the two countries firming a new tax treaty.
Since November 1, 2013, the country was facing higher withholding taxes of around 30%. It was also facing the consequences of transfer pricing provisions.
India and Cyprus, both entered into a tax treaty in 1994. Both nations are also obliged to exchange information. On November 1, 2013, the Finance Ministry notified Cyprus as a non-cooperative jurisdiction following failed discussions to secure the desired level of cooperation.
Rakesh Nangia, Managing Partner, Nangia & Co, a CA firm said that “As awaited the government has rescinded the notification issued under Section 94A treating Cyprus as a non-cooperative jurisdiction. Interestingly, the notification has been withdrawn prospectively, keeping the actions taken under the notification till December 14, 2016 unaffected.”
He also said that “this could be because taxes deducted at source under the notification and transfer pricing documentation maintained in lieu of the notification, cannot be undone.”