The Central Board of Direct Taxes (CBDT), the apex Indian Tax Administrative body, recently issued a Press Release dated 1 November 2013 (Press release), notifying Cyprus as a Notified Jurisdictional Area (NJA) under the provisions of the Indian Tax Laws (ITL) which seek to strengthen Indian system of collection of information from foreign tax jurisdiction.
The ITL contains a “tool box” to deal with transactions with entities located in non-cooperative countries or jurisdictions which do not exchange information with India. The Government of India (GOI) is empowered to notify such jurisdiction as a NJA to discourage transactions by taxpayers in India with persons located in a NJA by providing for onerous tax consequences in respect of such transactions. Since Cyprus has not been providing the information requested by the Indian Tax Authority under the exchange of information (EOI) provisions of the India-Cyprus Double Taxation Avoidance Agreement (DTAA), the same has been notified as a NJA.
Lately, international tax evasion, the implementation of high standards of transparency and EOI has been the focus on political agenda of global economies, including India. India secured membership of the Financial Action Task Force (FATF) in 2010. This was an important initiative of G-20 for anti-money laundering. India has also joined the task force on Financial Integrity and Economic Development, Eurasian Group (EAG) and Global Forum on Transparency and Exchange of Information for tax purposes. To effectively handle the increase in tax information exchange and transfer pricing issues, foreign tax division of the CBDT has been strengthened. A dedicated cell for EOI is being set up to work on this agenda.
The notification of a NJA is consistent with the global trend of introducing counter measures to deal with “non-cooperative tax jurisdictions” and strengthen tax enforcement. To illustrate, Columbia’s Ministry of Finance notified certain jurisdictions (including Cyprus and Mauritius) as tax haven, mandating taxpayers dealing with such jurisdictions to comply with onerous procedural provisions along the lines of the ITL. Cyprus has been the first jurisdiction notified as a NJA in India under the ITL.
Taxpayers dealing with persons located in Cyprus need to review the impact of this administrative move on their transactions/business structures and comply with various procedural requirements specified in the rules. Non-compliance with the procedural requirements may entail onerous consequences.
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