Friday, 6 January, 2017
This article is the first of a Vistra four-part series, intended to focus on the recent changes to the Indian DTA and the implications for businesses investing into India. In our first piece, we take a high level look at the recent changes to the Singapore-India DTA. The next article will focus on the implications of the revised DTA for Singapore.
On 30 December 2016, India and Singapore have signed a third protocol (“Protocol”) to revise their bilateral Avoidance of Double Taxation Agreement (“DTA”). Under the Protocol, India has the right to start imposing capital gains tax on alienation of shares of a company resident in India by a Singapore resident acquired on or after from 01 April 2017 whilst preserving the existing tax exemption on capital gains for shares acquired before 1 April 2017. For shares acquired on or after 1 April 2017, there will be a two-year transition period, during which the capital gains from such shares will be taxed at 50% of India’s domestic tax rate if the capital gains arise during 1 April 2017 to 31 March 2019.
The following changes have been introduced by the Protocol:-
Taxation of capital gains
Interest rate withholding tax
There has not been any changes to the tax rate on interest payments made by a company resident in India under the Protocol which will remain at 15% while that under the Mauritius-India DTA is currently at 7.5%.
Article 9 on Associated Enterprises of the Protocol provides for both countries to enter into bilateral discussions for elimination of double taxation arising from transfer pricing or pricing of related party transactions.
Anti avoidance rules
The newly inserted Article 28A provides that the Protocol will not prevent India and Singapore from applying its domestic law and measures concerning the prevention of the tax avoidance or tax evasion.
Promotion of bilateral investments
Both India and Singapore agreed on steps towards a set of new initiatives for joint promotion of bilateral investments with a view to concluding an agreement in the second half of 2017.
In line with the Mauritius-India DTA, India has got the right to levy capital gains tax from 1 April 2017 for investments routed through Singapore under the Protocol. The Singapore-India DTA, which had been pegged to the Mauritius-India DTA, has had to be similarly amended. The Protocol will continue to be underpinned by the stringent substance requirements which are unique to the Singapore-India DTA, and which ensure that the Protocol can only be enjoyed by tax residents with substantive economic activities.
The Protocol will only come into force following both India and Singapore exchanging notifications that their formal ratification processes have been finalised and shall enter into force latest on 1 April 2017.
To read more on the treaty which was amended in December 2016, please click here.