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Delhi ITAT delivers one of the first decisions dealing with Principal Purpose Test

The principal purpose test (“PPT”) has been introduced into the Indian double taxation avoidance agreement (“DTAA”) lexicon through the base erosion and profit shifting (“BEPS”) project of the Organisation for Economic Cooperation and Development (“OECD”) to dissuade sophisticated taxpayers from entering into transactions aimed at tax avoidance. The requisite amendments to the DTAAs have been made via multilateral instruments (“MLIs”).Continue Reading Delhi ITAT delivers one of the first decisions dealing with Principal Purpose Test

The India–Mauritius Double Tax Avoidance Agreement (“DTAA”), entered into in 1983, has since been the subject matter of contentious litigations. The well-drafted and reasoned ruling of the Delhi High Court (“Delhi HC”), which explains the availability of benefits to a Mauritius-based investor, the significance of the tax residency certificate (“TRC”), the limitation of benefits (“LoB”) clause, and the grandfathering provision in the treaty, has provided much-anticipated relief and certainty to the taxpayers.Continue Reading Delhi High Court grants tax-treaty benefits to Tiger Global’s Flipkart exit

Supreme Court lays to rest the Most Favoured Nation Controversy

The Most Favored Nation Clause

A Double Taxation Avoidance Agreement (“DTAA”) with one country might have a different treatment for the same income as compared to DTAA with another country. To ensure that such differential treatment is avoided, and similar benefits are available across different DTAAs, DTAAs may include the Most Favored Nation (“MFN”) clause. The MFN clause is not a part of the Organization for Economic Co-operation and Development’s (“OECD”) or the United Nation’s model tax conventions and is also not a standard clause of all DTAAs. Such a clause can be negotiated and included at the discretion of the contracting states for certain income (typically investment income).Continue Reading Supreme Court lays to rest the Most Favoured Nation Controversy

Mauritian entities have found it difficult to benefit from the capital gains tax exemption under the India- Mauritius double taxation avoidance agreement (DTAA) upon exit from Indian investments with the tax department questioning the said benefits. Recently, the Authority for Advance Ruling (AAR), declined to give a ruling on taxability of a Mauritian resident in India, on the grounds that the transaction was prima facie designed for avoidance of tax.[1]Continue Reading AAR declines ruling to a Mauritius resident, alleging that transaction was designed to avoid tax

Putting to rest the speculation surrounding the Double Taxation Avoidance Agreement (DTAA) with Singapore, the Government of India has finally announced that it has been revised. This announcement was made on December 30, 2016, and the text of the new protocol amending the India-Singapore DTAA (Protocol) has since been made available. The Protocol is along expected lines on the taxation of capital gains front. But, surprisingly, it has not granted incentives on taxation of interest income and Singapore based investors would be at a significant disadvantage as compared to Mauritius based investors.

KEY REVISIONS TO THE DTAAContinue Reading India-Singapore DTAA Meets the Same Fate as Mauritius & Cyprus

India and Cyprus have recently revised the Double Taxation Avoidance Agreement (DTAA) to be effective from April 01, 2017 and January 01, 2017 in India and Cyprus respectively.

Before 2013, Cyprus was a favoured jurisdiction for investments into India as capital gains from the sale of shares held by Cyprus based investors in Indian companies was not taxable in India. However, due to non-compliance of its information sharing obligations, India declared Cyprus a Notified Jurisdictional Area (NJA). This led to significant uncertainties. While the DTAA had not been rescinded, this development resulted in adverse implications for Cyprus based investors, including, inter alia, higher rate of withholding taxes, application of transfer pricing provisions to transactions with Cyprus based entities even though they are not related, etc. Thus, conducting regular business transactions between entities of both countries became difficult with many transactions getting deferred.

The revised DTAA is the culmination of prolonged negotiations and discussions between both the countries to address this situation. Pursuant to the execution of the revised DTAA, the notification declaring Cyprus as NJA has been rescinded.
Continue Reading Revision of the India-Cyprus DTAA: On Expected Lines

Long years of negotiations with Mauritius have finally culminated in the signing of the Protocol amending the Convention between Government of Mauritius and the Government of Republic of India (GOI) on May 10, 2016 (Protocol). This has resulted in a complete overhaul of the India – Mauritius Double Taxation Avoidance Agreement (DTAA).

A Few Key …