The governments of both India and Cyprus have said the island nation has been taken out of the former’s ‘black list’ with retrospective effect from November 2013 but experts say the notification’s drafting is such that it seems the move has prospective effect.
Cyprus was declared a ‘non-cooperative jurisdiction’ by Delhi in November 2013 for not sharing information on Indian account holders. It was the first tax jurisdiction to be so labelled by India.
With this, the number of taxes was increased on payments made to investors of that country. For example, the withholding tax on returns earned on debt investments was raised to 30 per cent from the then 10 per cent. The tax on fees for technical services and royalty payments were raised to 30 per cent, from 15 per cent.
If the treaty is annulled with retrospective effect, those who’d paid higher taxes can claim refunds.
Observers say the notification by the income tax department here is not in sync with the statements of both governments. The I-T department stated: "...the central government hereby rescinds the notification... dated November 1, 2013, except as respects things done or omitted to be done before such rescission, with effect from the date of publication of this notification." In contrast, the government had stated the notification on Cyprus statement had been “rescinded with effect from November 1, 2013".
Amit Maheshwari, managing partner with Ashok Maheshwary & Associates, said intent of the government was that the tag on Cyprus be rescinded with retrospective effect, but draft gives an impression that it is done with prospective effect. This would lead to ambiguity in the minds of investors, he said.
Abhishek Goenka, partner, direct tax, PwC, said the finance ministry statement should have put things to rest. However, drafting of the notification leaves room for ambiguity and litigations.