New Delhi: As part of its strategy to curb offshore tax evasion and promote foreign investment, India has recently operationalised seven new Income Tax Overseas Units (ITOUs) in countries like Germany, USA and France.
A similar Income Tax office in Cyprus has, however, not been activated as India, last year in November, classified the island nation as a notified jurisdictional area and suspended tax benefits.
Both the countries are on the talking table now to revoke the decision taken by India owing to non-cooperation in tax cases.
Sources said the Finance Ministry has recently posted seven Indian Revenue Service (IRS) officers as First Secretaries in Indian Embassies in France, Germany, Japan, Netherlands, UAE, UK and USA after getting approvals from the Prime Ministers Office and the External Affairs Ministry in this regard.
The government had decided to set up the ITOUs in these eight countries few years back as part of its multi-pronged strategy to combat blackmoney and streamline the flow of investments from these nations into India.
Two such ITOUs have been operational in Mauritius and Singapore for some years now and the positive results from these offices had prompted the Finance Ministry and CBDT to increase the number of such overseas I-T offices.
“Senior I-T officers have started functioning from these foreign offices after they were posted recently. However, the Cyprus ITOU has been kept vacant subject to the outcome of talks between the two countries,” sources privy to the development told PTI.
India and Cyprus had entered into a Double Taxation Avoidance Agreement (DTAA) in 1994, but last year India classified the island nation as a notified jurisdictional area and suspended tax benefits as the country was not providing information requested by tax authorities under the said treaty.
Following the notification by the Finance Ministry, all payments made to Cyprus attracted a 30 per cent withholding tax and Indian entities receiving money from there were required to disclose the source of funds.
After this decision, Cyprus had said the Indian government has agreed to withdraw a notification that suspended tax benefits for investments from the island nation but this is subject to the foreign nation adopting the global convention on exchange of tax information.
In a recent statement on renegotiation of the existing DTAA (Double Taxation Avoidance Agreement), Cyprus also said a new tax treaty is expected to be finalised soon.
Cyprus also said it would adopt provisions of Article 26 of the OECD Model Tax Convention relating to exchange of information in a new DTAA between the two countries.
The government’s intention to increase the numbers of ITOUs is also drawn from the idea that these units could obtain hassle-free information on tax and financial data of investments made by individuals and institutions in these countries and facilitate exchange of data on legal investment or routing of money in India and vice-versa.