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India To Set Up Tax Office In Cyprus

by Mary Swire, Lowtax.net, Hong Kong
26 December, 2013

India is expected to post a Revenue Service officer in Cyprus early in the new year, just months after it suspended its double tax avoidance agreement (DTAA) with the island.

The administrator will serve as First Secretary at a new Income Tax Department hub. According to sources, similar positions will be filled in France, Germany, the Netherlands, Japan, the United Arab Emirates, and the UK.

The Prime Minister's Office has given the final go-ahead to the project, and officers will be dispatched within a month. Income Tax Overseas Units are already operational in Mauritius and Singapore.

The DTAA between India and Cyprus was suspended in November, with the Indian Government alleging that information requested under the treaty's provisions had not been provided.

All parties to a transaction with an individual in Cyprus are now treated as associated enterprises, and the deal is therefore interpreted as an "international transaction." Any payment made to a person located in Cyprus is liable for withholding tax at 30 percent or at a rate prescribed in the Income Tax Act, whichever is higher. When money is received from Cyprus, the Indian assessee must explain the source of such funds. If the explanation is not deemed satisfactory, the amount received will be regarded as the assessee's income.

Negotiations toward a new DTAA are ongoing, and Cyprus has said that it anticipates they will conclude soon. It is thought that Article 26 of the Organization for Economic Cooperation and Development's Model Tax Convention – which sets out standards for the exchange of information – will be incorporated.

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