Talks on for Mauritius-like tax treaty with Singapore

India is likely to pursue amendments to its existing tax treaty with Singapore substantially on the lines of those achieved with Mauritius recently, a top income tax department official said.

There may be small variations and some fine tuning, but substantially similar to the amendments effected in the India-Mauritius treaty, said Akhilesh Ranjan, Chief Commissioner of Income Tax (International Taxation), at the 13th international tax conference, organised by industry body Assocham here on Tuesday.

“Talks are going on. There are some procedures to be followed. Modalities are on,” Ranjan said.

This remark is significant as it indicates that India would strive for attaining the taxing right on sale of shares of an Indian company, by a Singapore-based tax resident.

The existing India-Singapore tax treaty provides for residence-based capital gains taxation — capital gains on sale of shares would be taxable only in the country of residence of the seller, subject to satisfaction of limitation of benefits clause.

With India-Mauritius tax treaty amendments notified, all eyes are now on how India-Singapore tax treaty would get reshaped. This is because the amendments in the Mauritius treaty would also with effect from April 1 next year result in the withdrawal of capital gains exemption for investors based in Singapore

At present, investments through Singapore accounts for nearly 16 per cent of foreign direct investment (FDI) (from April 2000 to March 2016) in India, second only to Mauritius.

Plugging a loophole in its existing treaty with Mauritius, India had in May this year signed a protocol that led to it getting the taxing right on shares of an Indian company sold by a Mauritius resident. The protocol also provided for a limitation of benefit clause in the Mauritius treaty.

On the sidelines of the Assocham international tax conference, Central Board of Direct Taxes (CBDT) Chairperson Rani Singh Nair confirmed that talks are underway with Singapore to amend the tax treaty between the two countries.

“We are under the same protocol. Now that Mauritius has been renegotiated, Singapore is under discussion. There is no timeline and we are discussing it. We hope soon it will be firmed up. As you know, this is a bilateral treaty. We will take the concerns of both the countries and then we will sign,” Nair said.

Later, Vipul R Jhaveri, Managing Partner-Tax, Deloitte, Haskins & Sells LLP, told BusinessLine that it was in Singapore’s interest to get clarity and push for renegotiation of its tax treaty with India.

“Otherwise, investors will say I won’t go to Singapore or whoever is already in Singapore may want to move out of Singapore. If Singapore wants its investments in India to be protected, then they should move fast. India is still in a driver’s seat,” he said.

Relative to Mauritius, Singapore will be better off in the coming years, said Jhaveri, adding that the business purpose need will be better met by Singapore than Mauritius.

“All the attributes of ecosystem you need to run a business are better in Singapore than Mauritius. People will gravitate to Singapore purely for business reasons and not so much for tax reasons. Today it is lot to do with tax reasons. Tomorrow fewer companies will be going there but more for business reasons,” Jhaveri said.

He also added that efficacy of intermediate holding company structure from a tax point of view is now gone.

“Now in a true sense if you have an intermediate holding company, it will be for business purpose,” he said.

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