By way of a notification dated 14 December 2016, the Indian government has rescinded the notification of Cyprus as a notified jurisdictional area under section 94A of the Income Tax Act, 1961 (ITA). However the notification provides that de-notification will not affect things done or omitted to be done before 14 December 2016.
The notification of Cyprus as a notified jurisdictional area in 2013 had resulted in:
- The application of transfer pricing regulations to transactions between taxpayers and persons who are located in Cyprus;
- The denial of deductions in respect of any payment made to any financial institution in Cyprus unless the taxpayer authorized the Indian tax authorities to seek relevant information from the financial institution, on its behalf;
- The denial of deductions in respect of any expenditure or allowance arising from transactions involving a person located in Cyprus unless the taxpayer maintained and furnished certain specified information;
- Requiring the taxpayer to satisfactorily explain the source of any sum received from a person located in Cyprus, in the hands of such person or in the hands of the beneficial owner, with failure to do so resulting in such sum being treated as income of the taxpayer;
- Subjecting payments made to a person located in Cyprus to a withholding tax at the higher of a rate of 30% or a rate prescribed under the ITA.
The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.