Nearly a month after India's Department of Revenue notified Cyprus as a non-cooperative tax jurisdiction, the island nation has agreed to a new tax treaty and provide more information going ahead. India classified Cyprus as a 'notified jurisdictional area' (NJA) on November 1 in order to curb tax evasion and meet international transparency standards on exchange of information.
Cyprus said in a statement that the Double Tax Agreement (DTA) between Cyprus and India, which has been in force since December 1994, will soon be renegotiated.
“Pertaining to the matter of effective exchange of information between Cyprus and India, both delegations agreed that, the circumstances that have caused India to notify Cyprus as an NJA on November 1, 2013, are immediately addressed,” said Cyprus' Ministry of Finance in a statement.
Cypress said it will agree to adopt the provisions of the new Article 26 of the OECD Model Tax Convention (approved by the OECD Council on July 17, 2012) relating to Exchange of Information in a new DTA between the two countries. It will also agree to improve the channels of communication and exert efforts in facilitating each other in processing requests and responses in a swift and effective manner.
India has the power to classify Cyprus as NJA under section 94A of the Income Tax (I-T ) Act. This move would have attracted 30 per cent withholding tax on all payments from India to Cyprus.
Cyprus said that once this notification is rescinded, it will be with retrospective effect from November 1, 2013, the day when India issued the notification.
(Edited by Joby Puthuparampil Johnson)