Financial Daily from THE HINDU group of publications
Thursday, Jul 21, 2005
Financial Daily from THE HINDU group of publications Thursday, Jul 21, 2005 |
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Corporate
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Technology Industry & Economy - Taxation Tax protocol comes into effect on Aug 1 — Indian companies can access Singapore tech at lower cost K.R. Srivats
New Delhi , July 20 CORPORATE India can now access technology at a lower tax cost from Singaporean entities. This is because a protocol signed by India and Singapore lowering the maximum applicable tax rate on payments for royalties and fees for technical services from 15 per cent to 10 per cent would come into force from August 1. Official sources said that the protocol would amend the existing double taxation avoidance agreement (DTAA) between the two countries. The protocol provides that capital gains arising to a resident of a contracting State from sale of equity shares would be taxable only in the resident's State. As there is no capital gains tax in Singapore, for its residents, there would be no capital gains tax on such transactions. The protocol has also made it clear that a resident of Singapore or India, as the case may be, would not be entitled to the benefit of capital gains tax concession if the affairs of the resident were arranged with the primary purpose of taking advantage of such benefits. In particular, the benefit of capital gains tax concession under the DTAA would not be available to a shell/conduit company that claims to be a resident of either Singapore or India. The protocol has described a shell/conduit company as a legal entity falling within the definition of resident with negligible or nil business operations or with no real and continuous business activities carried out in either India or Singapore. Further, a resident-entity of Singapore or India would be deemed to be a shell/conduit company if its total annual expenditure on operations in that country is less than Singapore $2,00,000 or Rs 50 lakh, as the case may be, in the immediately preceding period of 24 months from the date the gains arise. The protocol also specified that a resident-entity of either country would not be considered a shell/conduit company if it was listed in a recognised stock exchange. Commenting on the protocol, Mr Rahul Garg, Executive Director of PricewaterhouseCoopers, told Business Line that "the move to bring down the general tax rate on royalties and fees for technical services would help Indian companies. They can access technology from Singapore entities at reduced tax cost." He also said that this reduction was in line with the current trend of bringing down the tax rates on such type of payments and being witnessed in the DTAAs negotiated by India with other countries.
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