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The Cypriot Government has said that India will soon remove the territory from its list of non-cooperative foreign tax jurisdictions following the renegotiation of their tax treaty.
Section 94A of India's Income Tax Act empowers the Government to "blacklist" any foreign territory that fails to effectively exchange information in tax matters with India.
In November 2013, India placed Cyprus on its list of notified jurisdictional areas for the purpose of Section 94A, complaining that the territory had failed to exchange tax information.
Cyprus is to be removed with retroactive effect to November 2013, after "the completion of the negotiation and the agreement reached on all pending issues," said Cyprus's Ministry of Finance, following a June 29 meeting in Delhi.
The Government said the new treaty will provide for source-based taxation of gains arising from the transfer of shares. A grandfather clause exists for investments undertaken prior to April 1, 2017. For these, the right to tax gains arising from the disposal of such shares at any future date will remain with the state of residence. India had also recently agreed a similar change to its tax treaty with Mauritius.
The Cypriot Ministry of Finance 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 an international business center is elevated."
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