THE Third Protocol amending India-Singapore Double Taxation Avoidance Agreement (DTAA)
signed on 30th December, 2016 has entered into force on 27th February 2017.
The
India-Singapore DTAA at present provides for residence based taxation of
capital gains of shares in a company. The Third Protocol amends the DTAA
with effect from April 1, 2017 to provide for source based taxation
of capital gains arising on sale of shares in a company. This will curb revenue
loss, prevent double non-taxation and streamline the flow of investments.
In order to provide certainty to investors, investments in shares made before
April 1, 2017 have been grandfathered subject to fulfillment of conditions
in Limitation of Benefits clause as per 2005 Protocol. Further, a two-year
transition period from April 1, 2017 to March 31, 2019 has been provided
during which capital gains on shares will be taxed in source country at half
of normal tax rate, subject to fulfillment of conditions in Limitation of
Benefits clause.
The Third Protocol also inserts Article 9(2) in the DTAA which would facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India's commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases. The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion.
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