As an anti-avoidance measure, the Indian government has amended its domestic tax law, with respect to transactions with taxpayers located in certain tax jurisdictions.

The amendments involving transactions made in Cyprus include a temporary 30% withholding tax, placed on all transactions between India and Cyprus which has been in place since March 31.

Under the tax treaty between India and Cyprus for the avoidance of double taxation of income and the prevention of fiscal evasion, which has been in force since December 21, 1994, both India and Cyprus have an obligation to exchange such information as is necessary for carrying out the provisions of the tax treaty or enforcing the domestic tax laws of the two jurisdictions, particularly as they relate to the prevention of fraud or evasion of taxes.

The Indian government issued a press release in November, stating that the Cypriot authorities had not been providing the information requested by India under the tax treaty’s exchange of information provisions. Therefore, India designated Cyprus a “notified jurisdiction” for purposes of certain transactions.

Despite recent efforts by the Cypriot authorities, the jurisdiction has remained blacklisted due to the elections currently taking place in India, as the issue has, by now, taken a political dimension.

It has now been announced that the Inland Revenue Department has made significant efforts to issue the data requested, having so far responded to 40 of the 48 requests for information for tax purposes submitted by the Indian authorities.

The withholding tax is considered temporary; however, the implementation of the measure has not helped the reputation of Cyprus as a business centre.

The issue was discussed at the meeting of the Chairman of the Democratic Rally, Averof Neophytou, with the High Commissioner of India to Cyprus on Monday.