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The Indian Cabinet on August 24 approved the signature of a double tax agreement protocol with Cyprus that would tackle "round tripping" and base erosion and profit shifting.
According to the Indian Government, the revised treaty will provide for source-based taxation of capital gains arising from the transfer of shares, rather than residence-based taxation. This will enable India to tax capital gains arising in India.
India had also recently agreed a similar change to its tax treaty with Mauritius.
The Government said: "The provisions in the earlier treaty for residence-based taxation were leading to distortion of financial and real investment flows by artificial diversion of various investments from their true countries of origin for the sake of avoiding tax. As in the case of Mauritius, this amendment will deter such activities."
The Cypriot Ministry of Finance had earlier said: "The text has been agreed between the two negotiating teams of the contracting states and will contribute to further develop the trade and economic links between Cyprus and the Government of India, as well as with other countries. Upgrading and expanding the network of [tax treaties] is of high economic and political importance and aims to further strengthen and attract foreign investment in Cyprus as its standing as an international business center is elevated."
The Government said that negotiations with Singapore are also underway for similar changes.
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