Singapore investments on tenterhooks as Mauritius DTAA change weighs in

KR SrivatsSurabhi Updated - January 20, 2018 at 01:56 PM.

No clarity yet on whether India will ‘grandfather’ Singapore treaty benefits

singapore-investments

Investors are worried that investments from Singapore to India may lose their capital gains tax benefits after the government plugged loopholes in a tax treaty with Mauritius.

This worry stems from an apprehension that New Delhi will not allow grandfathering of investments originating from Singapore, as it did for the ones from Mauritius. Grandfathering refers to alteration of rules that apply to certain investments while stipulating that investment actions taken before a certain date remain subject to the old rules.

Earlier this week, India said it would start imposing capital gains tax on investments coming from Mauritius next year, amending a three-decade-old pact.

Experts expect the treaty with Singapore to be the next in line for a relook.

With the India-Mauritius treaty moving to source-based taxation, the question is what happens to the benefits under the India-Singapore treaty. This is due to the current direct linkage that exists between the Singapore DTAA (double taxation avoidance agreement) with Mauritius DTAA because of which capital gains on shares of Singapore, too, would become source based. It is widely hoped that when India and Singapore renegotiate the existing treaty, this aspect will be addressed.

Amit Singhania, Partner at law firm Shardul Amarchand & Mangaldas, said after the withdrawal of capital gains exemption under the India-Mauritius tax treaty, the withdrawal of exemption under the India-Singapore tax treaty is a fait accompli .

“However, this gives rise to various issues under the India-Singapore treaty, such as whether there will be any grandfathering of investments made through the Singapore structure and timing of withdrawal of exemption,” Singhania told BusinessLine .

Sanjay Kumar, Senior Advisor at Deloitte, said: “My sense is that the treaty with Singapore will have to be renegotiated to provide certainty on the issue,” he said.

Meanwhile, the Finance Ministry is likely to issue a detailed circular clarifying the concerns of companies and investors over the amended tax pact with Mauritius and its impact on a similar treaty with Singapore.

On Thursday, Minister of State for Finance Jayant Sinha, along with Revenue Secretary Hasmukh Adhia and officials from the Central Board of Direct Taxes, met foreign portfolio investors to discuss their concerns on the General Anti Avoidance Rules and the implications on tax treaties.

Published on May 12, 2016 17:54