A number of news sources have recently reported that the Indian
tax authorities have taken the decision to designate Cyprus as a
notified jurisdictional area under section 94A of the Indian
Income-tax Act of 1961. This means that transactions carried out by
Indian taxpayers with entities based in Cyprus will now come under
increased scrutiny from the Indian tax authorities and a
withholding tax will be imposed on payments by Indian taxpayers to
recipients in Cyprus.
It is understood that the Indian decision to designate Cyprus as a
notified jurisdictional area arises from a disagreement over the
interpretation of the exchange of information provisions in the
double taxation convention between the two countries, with the
Cyprus authorities having declined to respond to certain requests
for information on the grounds that they did not meet the
requirements of the convention, and the Indian authorities having
imposed the designation in order to apply pressure to Cyprus to
change its position.
In addition, the Indian authorities have for some years been
attempting to renegotiate the double taxation convention, which is
extremely beneficial as it allocates taxing rights for capital
gains realized on investments to the country of residence of the
alienator (Cyprus generally exempts gains from the alienation of
investments), and the designation is also seen as a means of
applying pressure to Cyprus in this regard.
It is important to stress that, contrary to reports in certain
sections of the media, the double tax convention has not been
terminated.
The Cyprus Ministry of Finance has announced that it attaches great
importance to its obligations under international agreements, and
that the Cyprus government is in contact with the Indian government
and is exerting every effort to clarify and resolve the situation.
The two governments have agreed that urgent negotiations will take
place during November.
We therefore expect the current situation to be resolved in the
near future and will post updates on our website.
You can view the Cyprus government's statement via this link.
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