India Considers DTAA With Luxembourg

by Lorys Charalambous, Tax-News.com, Cyprus

06 June 2005

The Indian government is considering the possibility of establishing a new double taxation avoidance agreement with Luxembourg.

Reports have indicated the the Indian government has sought the views of the Reserve Bank of India on the matter. However, the authorities will be keen to place restrictions in any agreement with Luxembourg to prevent it being exploited by companies and investors as a means to dodge Indian taxes, as has allegedly been the case with the Indo-Mauritius DTAA.

The root cause of this problem is that many so-called 'FII's (foreign institutional investors) are in practice simply Indian organisations or individuals who have round-tripped through Mauritius and other offshore centres in order to invest tax-free back in India.

The government's preferred route to deal with this issue is to improve transparency by including exchange of information clauses in the DTAAs, and incorporating the DTAAs into overall bilateral free trade agreements.

Last month, a report by the Comptroller and Auditor-General of India, Vijayendra N Kaul, recommended that DTAAs be examined critically through a phased and well-monitored programme so that the interests of the revenue are safeguarded and one-sided concessions are avoided.

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