Cyprus has accepted a key condition put forward by India on effective exchange of information on tax avoiders, hoping its move, which comes amid continuing talks on amending their mutual tax treaty, will persuade India to “rescind the classification of Cyprus as a notified jurisdiction”. Cyprus informed New Delhi a few days ago that it ratified the Council of Europe-OECD (Organisation for Economic Cooperation and Development) Multilateral Convention on Administrative Assistance in Tax matters on 5 September, said Maria Michail, the Cypriot high commissioner to India

Michail said her government invited the Indian government a few months back to visit Cyprus for another round of talks for finalizing the DTAA. “As far as the revision of the existing bilateral double taxation avoidance agreement is concerned, we are hopeful that the Indian government will soon send a delegation to Cyprus for another, and hopefully the final, round of talks to resolve the pending issues and finalize the revision, in a mutually beneficial way.”

India is insisting on the inclusion of the LOB clause to prevent investors misusing the treaty to avoid paying taxes in India. The current treaty provides for zero percent capital gains tax and a low withholding tax rate of 10% on interest payments made to entities based in Cyprus. But India, keen to move on tax avoidance and black money, declared Cyprus a notified jurisdiction in November last year saying the European nation had failed to share adequate information on tax avoiders. As a result, business transaction with entities based in Cyprus came under increased scrutiny of the income tax department.

In addition, if any sum of money is received from a person located in Cyprus, the onus will be on the assessee to explain the source of the money in the hands of that person. Also, any payment to a Cypriot entity will attract a withholding tax of 30%.