India signs double tax avoidance treaty, removes Cyprus from blacklist

Indian authorities will strike Cyprus off the South-Asian country’s blacklist after India and Cyprus successfully renegotiated their agreement for the avoidance of double taxation and prevention of fiscal evasion, the finance ministry said.

The completion of the negotiations “and the agreement reached on all pending issues will pave the way for the removal of Cyprus from the list of notified jurisdictional areas placed in November 2013,” the finance ministry said in an emailed statement on Thursday. India blacklisted Cyprus then for not disclosing information on money transferred by Indian citizens who conducted business on Cyprus and were suspected for tax evasion.

India, the world’s second most populous country whose $2.1tn (€1.9tn) gross domestic product makes it the world’s seventh largest economy after France last year according to the International Monetary Fund, agreed with Cypriot authorities to “proceed with retrospectively rescinding the classification of Cyprus in the ‘Notified Jurisdictional Area’ as from 1st of November 2013,” the statement said.

The contracting states, both two former British colonies, which signed the new agreement on Wednesday in New Delhi, agreed to “to further develop the trade and economic links between Cyprus and the government of the Republic of India, as well as with other countries,” the finance ministry said. “The agreement reached provides for source based taxation for gains from the alienation of shares. Investments undertaken prior to April 1st 2017 are grandfathered with the view that taxation of disposal of such shares at any future date remains with the contracting state of residence of the seller”.

In October last year, the Indian Economic Times reported that India was re-considering a 30 per cent punitive tax on interest income payable from portfolio investors from Cyprus as the levy threatened to eliminate yields from Indian debt funds.
While beneficiaries were able to reclaim the tax deduction, after Cyprus-based investors agree to share their names with Indian authorities, the process of returning the tax withheld could have taken up to four years, the Economic Times reported.
“Upgrading and expanding the network of Double Tax Conventions, is of high economic and political importance and aims to further strengthen and attract foreign investment in Cyprus as its standing an international business centre is elevated,” the finance ministry said.