Tax Haven: Cyprus removal from notified jurisdiction to be effective from November 2013

The Central Board of Direct Taxes (CBDT) has given a big relief to those Indian investors and companies who have raised capital from the tax haven country Cyprus since November 1, 2013.

As against an earlier order of removing Cyprus as a notified jurisdictional area with retrospective effect from November 1, 2013, now the CBDT has said that "it will be effective retrospectively from November 1, 2013."

India blacklisted Cyprus as 'non-cooperative jurisdiction' in November 2013 for not sharing tax-related information. It had classified as a notified jurisdictional area under section 94A of Income Tax Act.

A minimum withholding tax rate of 30% on payments to persons located in Cyprus was applicable at that time. Transfer pricing provisions to transactions with Cypriot persons was also applicable.

After the outcry from investors and cooperative steps taken by Cyprus, the CBDT has revoked the blacklist Notification on 14 December 2016. This step was effective from that date only, not from the retrospective date November 1, 2013. The transactions which already taken place before 14 December 2016 would not get relief by the rescission Notification.

Now CBDT has allowed this relief from November 1, 2013. The higher withholding tax, deemed applicability of transfer pricing provisions would not applicable to transactions with Cypriot persons undertaken on or after November 1, 2016.