Cyprus relents, agrees to renegotiate tax treaty

India blacklisted the country last month for not sharing info

A month after India blacklisted Cyprus for not sharing information about tax dodgers, the tax haven has agreed to exchange information and amend the tax treaty between the two. This would help the Mediterranean island get rid of the “non-cooperative” label that made it difficult for Indian residents to do business with it and lose many tax benefits.

During the consultations with the Indian authorities last week, Cyprus said it would start the long-pending renegotiation of its double taxation agreement (DTA), which came into force in December 1994. It said the new DTA would be finalised soon.

"Pertaining to the matter of effective exchange of information between Cyprus and India, both delegations agreed that the circumstances that had caused India to notify Cyprus as a 'notified jurisdictional area' on November 1, are immediately addressed," Cyprus said.

Cyprus has agreed to adopt the provisions of the new Article 26 of the OECD Model Tax Convention relating to the exchange of information in a new tax pact with India. The two also agreed to improve channels of communication and facilitate each other in processing requests and responses.

Cyprus' agreement has come with a rider that once its notification as a “notified jurisdictional area” under Section 94A of the Indian Income-tax Act 1961 is rescinded, it will be with retrospective effect from November 1, when the notification was issued.

Section 94A was introduced in the Income-tax Act through the Finance Act, 2011. Under this, the government can notify a country as non-cooperating if there is lack of effective exchange of information.

As Cyprus was notified last month, any payment made to a person located in the country is now liable for withholding tax at 30 per cent. If any sum is received from a person located in Cyprus, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner. No deduction in respect of any payment made to any financial institution in Cyprus is allowed unless the assessee furnishes an authorization allowing for seeking relevant information from the said financial institution.

In its plea, CBI had stated Ambani was responsible for incorporation of shell companies such as Swan Telecom, Tiger Traders, Zebra Consultants, Parrot Consultants  and Giraffe Consultancy “and their interlocking equity structures”.

Ambani, however, is learnt to have denied the allegation that Swan Telecom was a Reliance Group company.