Clarify the tax treaty with India, Mauritius, Cyprus, and Singapore

The Indian Direct Central Committee (CBDT) stated that investment based on the tax treaty with Mauritius, Cyprus, and Singapore would not be subject to retroactive surveys based on the main test (PPT). This movement deals with long -standing concerns about global tax regulations and brings stable investors.

On January 22, 2024, the Direct Central Committee in India (CBDT) was the main purpose of such investments for investments from Mauritius, Cyprus, and Singapore before April 1, 2017. Was utilizing tax incentives. This clarity guarantees that these investments are exempted from the retroactive application of the main purpose test (PPT), which is a mechanism introduced as part of the tax source erosion and profit transfer (BEPS) framework that prevents the abuse of the treaty. Masu.

The PPT denies the benefits of the tax treaty if the main purpose of the tax treaty is a tax avoidance, and guarantees that such a treaty is used for true commercial purposes, not as a means of tax evasion. It is for the purpose.

Depositing concerns about the Indian Mauritius Treaty

CBDT has clarified that PPT clause based on the double tax avoidance agreement (DTAA) is applied only in the future. When applying PPT, we have objectively evaluated facts and situations, and emphasizes the need to promote the consistency and fairness in its implementation.

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In addition, CBDT reconfirmed Indian commitments for Mauritius, Cyprus, and Singapore, which are specific to the two -kingdom agreement with “grandparents” clause. These provisions protect the investment made before the specified date so that they are not affected by PPT. As a result, the existing investment based on these treaties provides the stability of investors without losing tax incentives.

Tax experts welcome that this clarity is an important step in keeping the promise peculiar to the treaty and reducing uncertainty. Industrial officials will solve the deep -rooted questions related to the Indian Mauritius Treaty, and will open a formal notification and a way to implement the accounting year (2025-26), which begins on April 1, 2025. I have pointed out.

Judgment for the stability of the treaty

The explanation of CBDT is consistent with the recent court ruling involved in the PPT’s first judicial judging in India, which is based on Luxembourg, which is based in Luxembourg. In this case, the Indian tax authorities tried to deny the benefits of the treaty due to the lack of economic entity and substantial ownership. The Income Tax Appeals Court (ITAT) claimed that if there were no specific evidence, the benefits of the treaty could not be denied, and ruled taxpayers.

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This case guarantees that the PPT is not applied retroactively, and the exemption provisions based on the treaty of Singapore, Cyprus, and Mauritius will continue to be effective. These measures are expected to increase the trust of investors by ensuring the prediction and stability in the framework of the Indian tax treaty.

Understand the grandfather clause

Grandfather’s clause functions as an important transition mechanism in tax treaties and law. Even if the regulation changes occur, we will maintain the application of the benefits of existing laws and treaties for a certain period of time and provide buffers to adapt to new frameworks to stakeholders.

In the context of the Indian tax treaty, the grandfather’s clause ensures continuity and protects investors’ interests by reducing confusion that can adversely affect corporate financial stability.