On November 19, 2016 we already reported that on November 18, 2016 the Government of the Republic of Cyprus and the Government of India concluded a new Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Hereafter: the new DTA).
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Based on Article 29, Paragraph 4 of the new DTA, the existing Agreement between the Republic of India and the Republic of Cyprus for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital signed on June 13, 1994, shall be terminated on the date that the new DTA comes into effect.
Below we will discuss a selection of provisions included in the new DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the new DTA (“TAXES COVERED”), the existing taxes to which the Agreement shall apply are in particular:
a) in Cyprus:
(i) the income tax;
(ii) the corporate income tax;
(iii) the special contribution for the defence of the Republic; and
(iv) the capital gains tax;
b) in India, the income tax, including any surcharge thereon.
Article 2, Paragraph 4 subsequently arranges that the new DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Residency
Article 4, Paragraph 3 of the new DTA (“RESIDENT”) arranges that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which its place of effective management is situated cannot be determined, then the competent authorities of the Contracting States shall settle the question by mutual agreement within two years from the date of invocation of Mutual Agreement Procedure, according to this Agreement.
Permanent establishment
Article 5, Paragraph 3 of the new DTA (“PERMANENT ESTABLISHMENT”) arranges that
(a) A building site or construction, installation or assembly project or supervisory activities in connection therewith constitutes a permanent establishment only if such site, project or activities last more than six months.
(b) The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 90 days within any 12- month period.
Article 5, Paragraph 6 arranges that notwithstanding the preceding provisions of Article 5, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom Article 5, Paragraph 7 applies.
Immovable property
Article 6, Paragraph 1 of the new DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the new DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the new DTA subsequently arranges that gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State.
Associated enterprises
Article 9, Paragraph 2 of the new DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the new DTA (“DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividends to 10 per cent of the gross amount of the dividends.
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 10 percent of the gross amount of the interest.
Royalties and fees for technical services
If the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, Article 12, Paragraph 2 of the new DTA (“ROYALTIES AND FEES FOR TECHNICAL SERVICES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to 10 percent of the gross amount of the royalties or fees for technical services.
Article 12, Paragraph 3 sub b subsequently arranges that the term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 14 (“INDEPENDENT PERSONAL SERVICES”) and 15 (“DEPENDENT PERSONAL SERVICES”) of the new DTA as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.
Capital Gains
Article 13, Paragraph 5 of the new DTA (“CAPITAL GAINS”) arranges that gains from the alienation of shares other than those mentioned in Article 13, Paragraph 4 (See above under Immovable property) in a company which is a resident of a Contracting State may be taxed in that State.
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 25), regarding the Exchange of Information (Article 26) and regarding the Assistance in the collection of taxes (Article 27).
Click here to be forwarded to the text of the new DTA as available on the website of the Cyprus Government Gazette.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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