By Angelos Anastasiou
India’s unilateral decision from last November to classify Cyprus as a ‘notified jurisdiction’, a form of black-list of non-cooperative jurisdictions in tax-information sharing that meant the suspension of the double taxation avoidance agreement (DTAA) between the two nations, may soon be revised to restore the DTAA, according to Indian press reports on Wednesday.
The DTAA, signed in 1994, has catalysed Cyprus’ ascension to the top-10 of India’s foreign direct investment (FDI) sources, clocking in at number 7 and accounting for close to $7.5 billion in FDI between 2000 and 2014.
But when India decided to notify Cyprus of its inclusion in the uncooperative jurisdictions list, citing its failure to disclose adequate payer information to Indian tax authorities, the Asian nation began levying a 30 per cent withholding tax on all payments made to Cyprus – up from 10 per cent under the DTAA. Further, it mandated that all transactions to India originating from Cyprus must be accompanied by full disclosure of the exact source of payments.
“Cyprus has been requesting to be put off the notified jurisdictional area list on the grounds that it has started sharing information with India now. Though the information on specific requests by Indian tax authorities has started flowing in, a decision on taking it off the list would happen only when there is a specific commitment from them,” an Indian government source said earlier this month.
Indian Prime Minister Narendra Modi’s administration has long declared a crackdown on ‘black money’ – undeclared income in tax havens – a policy priority. Last May, during the cabinet’s first official meeting, it created a special investigative team to address the issue.
In the face of the Indian business restrictions, Cyprus has been unequivocal in expressing its intentions.
“We don’t want black money in Cyprus, we want legitimate money. We are willing to work with the SIT on black money and will take up the issue with the new government,” high commissioner of Cyprus, Maria Michail, said on the matter.
But if Cyprus is serious about maintaining its status as a competitive jurisdiction for routing FDI into India, rapid steps must be taken to strengthen tax information sharing efforts with Indian authorities, according to online business news site India Briefing.
Stronger indications of compliance with Indian demands will be required, perhaps including a formal declaration of intent by Cyprus, before India will consider restoring Cyprus’ status as a cooperative trading partner.