Double Tax Treaties to be revised in India
With a view to renegotiate anti-abuse provisions, India is revising its double taxation avoidance treaties, especially those concluded before 2004.
Also, the latest Finance Act will allow new double tax treaties to be negotiated with non-sovereign territories.
A particular India’s concern regards the double tax treaty with Mauritius as it provides for exemption of capital gains tax on sales of shares. Amendments to this treaty were planned in order to “prevent its misuse for avoiding taxes and enhance exchange of information, including banking information.”
The government of India believes that other treaties that came into force before 2004 are also weak in their anti-abuse provisions. These include treaties with the US, Cyprus, the Netherlands, and Australia. It was noted in the parliamentary written answer that 60% of Indian foreign investments in 2008 involved countries listed as “tax havens”, the main ones mentioned there were Cyprus, Singapore, and Mauritius.
Foreign direct investment (FDI) into India is largely routed through jurisdictions such as Mauritius and Bermuda, and the reasons for this is attributed to tax optimisation. Bermuda is one of the non-sovereign jurisdictions for which double tax treaty was impossible until the present Finance Act. The main aim of the new treaties will be to provide tax information exchange. The new treaties are to include the Cayman Islands, Hong Kong, and Macau.