UAE National Denied Tax Treaty Benefits On Indian Investments

by Lorys Charalambous, Tax-News.com, Cyprus

11 May 2005

An Indian judicial body has ruled that a national of the United Arab Emirates cannot claim tax relief in respect of the bilateral double taxation avoidance agreement between the two countries and therefore must pay tax on his Indian investments.

The decision was reached on Monday by the Authority for Advance Rulings (AAR), in a case referred by a UAE-based investor named Abdul Razaq Memon who was seeking clarification on the issue of whether he was liable for capital gains tax on his Indian investments.

In reaching its decision, the AAR argued that because the UAE does not levy taxation on income, then UAE nationals are not entitled to claim tax relief via the double taxation agreement.

However, the ruling has been criticised by members of India's tax profession, who have pointed out that the AAR reached a different verdict in a similar case involving the UAE-based firm Emirates Fertilisers & Trading.

One senior practitioner told the Economic Times that in this previous case, the AAR reached "totally the opposite" conclusion, and observed that the judicial body was being "consistently inconsistent" in its decision making.

The ruling also denies tax treaty benefits to non-resident Indians with investments in the UAE, and has thrown open the question of whether companies and partnerships will also be affected.

The Authority for Advanced Rulings was established under the Income Tax Act 1961, and is designed to dispense binding decisions on tax cases for non-residents and certain residents in the hope of avoiding expensive and drawn out litigation.

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