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The fine print of the third protocol amending the India-Singapore double taxation avoidance agreement (DTAA) is finally out. A significant fallout is that Mauritius may now emerge as preferred jurisdiction for routing investments into Indian debt instruments compared with Cyprus and Singapore, say tax experts.
This is because no changes have been brought in the latest Singapore Protocol with regard to taxation of interest payments.
Post this development, withholding tax applicable on interest payments made (on the fixed income business side) to Mauritius entities stand at a beneficial rate of 7.5 per cent, much lower than the existing 15 per cent level for Singapore and Cyprus.
Although the Centre had, by revising the India-Mauritius tax treaty, closed a loophole and blunted the attractiveness of Mauritius for routing equity investments into India, it had allowed a beneficial withholding tax of 7.5 per cent for fixed income business.
Aseem Chawla, Managing Partner, ASC Legal, a law firm, said: “With no changes brought in the protocol (India-Singapore) with regard to tax treatment of interest payments, Mauritius would now stand out as an alternative attractive jurisdiction for routing debt with 7.5 per cent withholding tax rate when compared with both Singapore and Cyprus.”
Chawla also highlighted that the India-Singapore Protocol explicitly provides for GAAR provisions — if implemented by India — to override the DTAA between the two countries.
Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co, said that the new Singapore Protocol does not propose to amend the interest clause of Singapore tax treaty.
On a better footing This implies that withholding tax rate under India-Singapore tax treaty on interest derived from India will come in at 15 per cent(except payable to Singapore Bank) compared with 7.5 per cent under Mauritius tax treaty.
Rakesh Nangia, Managing Partner, Nangia & Co, said the Singapore Treaty amendment is silent on any change in taxability of interest income i.e. it remains 10/15 per cent. However, fixed income for Mauritius entities is taxable at the rate of 7.5 per cent, which is far more beneficial compared with Singapore.
“Also the grandfathering of capital gain tax provisions till March 31, 2017, in case of Singapore shall remain subject to the limitation of benefit clause, thereby still keeping Mauritius on a better footing than Singapore. On both these grounds, Mauritius remains a preferred route as compared to Singapore,” Nangia said.
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