India amended its domestic tax law for transactions with taxpayers of certain tax jurisdictions, as an anti-avoidance measure.
Details of the Cyprus Withholding Tax Measure
The amendments involving transactions made in Cyprus include a temporary 30% withholding tax for all transactions between India and Cyprus in place since March.
Under the double tax treaty between India and Cyprus in place since 1994, both countries are obliged to exchange such information in order to implement the domestic tax laws of the two jurisdictions helping to prevent evasion of taxes.
Reasons for Notified Jurisdiction Status
India has labeled Cyprus a “notified jurisdiction” since November of last year, on account of a lack of responsiveness by the Cypriot authorities following requests for information by the Indian authorities under the respective states’ tax treaty.
Despite several efforts by the Cypriot authorities, the Cyprus still remains on the blacklist, as the issue has taken a political dimension.
Cyprus Administration's Response and Efforts
Considerable efforts were made by the Inland Revenue Department to issue the data requested by India, having responded to already 40 of the 48 requests for tax information.
Impact on Cyprus as a Business Hub
The implementation of a 30% withholding tax has not helped the reputation of Cyprus as a business hub.
Ongoing Negotiations and Future Outlook
Negotiations are still underway with a view to reaching a jointly acceptable solution.
