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Mahesh

15/11/23 09:15 AM IST

Cyprus Confidential

In News
  • The Cyprus Confidential investigation reveals that entities with offshore residency were controlled from India, and instructions for financial transactions in these entities are given by individuals in India
Cyprus Confidential
  • Cyprus Confidential is a global offshore investigation of 3.6 million documents in English and Greek, which lays bare a paper trail of companies incorporated in the tax haven of Cyprus by the rich and powerful from around the world.
  • The investigation, carried out in partnership with the International Consortium of Investigative Journalists (ICIJ), involves more than 270 journalists from more than 60 media houses in 55 countries and territories.
  • The data trove comprises documents from six offshore service providers in Cyprus.
Investigation regarding India
  • The investigation attempts to lift the veil of secrecy for government and regulatory agencies.
  • The documents reveal how entities with offshore residency were controlled from India, and instructions for financial transactions in these entities are given by individuals in India.
  • It is not illegal to set up an offshore company in Cyprus.
  • India has double-taxation avoidance agreements (DTAAs) with several countries, including Cyprus, which offer low tax rates.
  • Companies use their tax residency certificates in such countries to enjoy tax benefits that are available legally.
India's Tax Treaty with Cyprus
  • India’s tax arrangement with Cyprus has had three distinct phases over the last two decades.
  • India and Cyprus had a tax treaty offering investors exemption from capital gains tax at the time of exit. Incidentally, Cyprus too didn’t tax capital gains. Thus, investors paid zero tax on gains made from their equity investment in India.
  • Withholding tax is an effective way to ensure tax compliance by non-residents who may be subject to different tax regulations than residents. It is applicable in case of payments done to non-resident individuals. It is the payee’s responsibility to deduct tax when depositing the payment in the account of the NRI.
  • After 2013- On November 1, 2013, India included Cyprus in a list of countries that refrained from sharing or exchanging valuable tax-related information.
  • In technical terms, it was categorised as a Notified Jurisdictional Area (NJA) under Section 94A of the Income-tax Act.
  • NJA countries face consequences such as a higher withholding tax rate of 30 per cent for payments received by entities registered there.
  • Further, transactions with entities in NJA are subjected to Indian transfer pricing regulations.
Tax Benefits offered by Cyprus
  • Offshore companies and offshore branches managed and controlled from Cyprus are taxed at 4.25 per cent, and offshore branches managed and controlled from abroad and offshore partnerships are totally exempt from tax.
  • There is no withholding tax on dividends, and the beneficial owners of offshore entities or branches are not liable to an additional tax on dividends or profits over the amount paid by the respective legal entities.
  • No capital gains tax is payable on the sale or transfer of shares in an offshore entity, and no estate duty is payable on the inheritance of shares in an offshore company.
  • There is no import duty on the purchase of cars, office or household equipment for foreign employees. It also assures anonymity of the beneficial owners of offshore entities.
India- Cyprus DTAA
  • It allows Cyprus — which has a low tax regime — to be used as a jurisdiction for tax planning. Many foreign investors set up their investment firms in Cyprus to invest in India to benefit from the DTAA.
  • Cyprus is now an alternative to Mauritius for setting up an offshore entity for investment in India. As dividends paid out from India will be subject to withholding tax, no taxation will arise in Cyprus as this will be adjusted or credited against the 4.25 per cent tax in Cyprus.
Offshore trusts
  • As per Cyprus International Trust Law, offshore trusts are trusts whose property and income are outside Cyprus, and even the settlor and beneficiaries are not permanent residents of Cyprus.
  • If the trustee is a Cypriot, the offshore trust is exempt from estate duty, and does not have to pay any tax on the income and gains. The trust need not be registered with any government or other authority, and confidentiality is enshrined in the new law.
  • In other words, the trust allows businesspersons to avoid tax that would have otherwise been paid by the settlor had she/ he remitted the income arising from overseas operations, to the country of residence
  • Offshore branches of companies not having management and control of their business in Cyprus are granted complete exemption from income tax in Cyprus in respect of their profits derived from sources outside Cyprus, whereas if the management and control is in Cyprus they are subject to a tax of 4.25 per cent.
Source- Indian Express

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