Owen, Christopher: Offshore Survey – April 2005 Supplement

Indian ruling that tax treaties override domestic tax laws A recent ruling by the Authority for Advance Rulings (AAR) on the application of the India-United Arab Emirates tax treaty has held that merely because there is no tax incidence in the other country, it does not imply that such income can be taxed in India. Tax treaties override domestic tax laws. In this case, a UAE resident partnership, Emirates Fertilizer Trading, wished to dispose of 4m shares in Indo-Gulf Corporation valued at around Rs 40m. It submitted that as per the Indo-UAE tax treaty, there would be no liability to pay tax in India on capital gains arising on sale of shares in an Indian company. The Indian tax department argued that the UAE firm was not subject to tax in the UAE. If it were not subject to any tax in India either, it would therefore lead to a situation of double non-taxation. It contended that the UAE firm should be subject to tax in India on the capital gains earned by it on sale of its investments in an Indian company. But the AAR disagreed, finding that under article 13(3), of the treaty capital gains realised by a UAE resident were taxable only in the UAE and not in India. Based on the provisions of the Income-Tax (I-T) Act, the AAR held, “The tax treaty has an overriding effect over the provisions of the I-T Act. Thus, the capital gains arising to the UAE resident on sale of shares of an Indian company cannot be taxed in India.” The advance ruling in the case of M/s. Emirates Fertilizer Trading Co. WLL, U.A.E. was dated 27 October 2004. Rulings given by the AAR are binding only upon the concerned applicant and the tax authorities, in relation to the questions raised in the application, but they tend to have a persuasive effect on other similar cases.China joins FATF as an observer The People?s Republic of China attended a meeting of the Financial Action Task Force (FATF) in Paris in February as an observer. The Chinese authorities are now working with the FATF to achieve full membership. The FATF?s invitation followed China?s commitment to implement the FATF?s 40 + 9 Recommendations against money laundering and terrorism financing, to undergo a mutual evaluation and to play an active role, both regionally and worldwide. China will be eligible for FATF membership upon completion of a successful mutual evaluation of its anti-money laundering and counter-terrorist financing system. Meanwhile the Cook Islands, Indonesia and the Philippines have been removed from the FATF?s list of Non-Cooperative Countries & Territories (NCCTs) after recent examinations confirmed that they are effectively implementing anti-money laundering measures to remedy previously-identified deficiencies. The current NCCT list comprises Myanmar, Nauru, and Nigeria and the FATF calls on financial institutions to scrutinise transactions with persons, businesses, or banks in listed countries with inadequate anti-money laundering infrastructures. The FATF has also welcomed two new FATF-style regional bodies into the global network that combats money laundering ? the Eurasian Group (EAG), founded in Moscow in October 2004, and the Middle East & North Africa FATF (MENAFATF), founded in Bahrain last November.Mauritius signs treaties with Seychelles and Barbados Mauritius and Seychelles signed a tax treaty on 11 March, the first income tax treaty concluded between the two countries. Mauritius also signed a tax treaty with Barbados in St Kitts on 28 September last year. Tax treaties signed with Lesotho, Rwanda, and Uganda have all entered into force. Mauritius has now signed tax treaties with over 30 countries worldwide and has become the primary channel for foreign direct investment in several countries, most notably India, although last year the Indonesian government revoked its treaty, citing “tax treaty abuses”.Andorra joins OECD Global Forum The Principality of Andorra has accepted the OECD?s invitation to participate in the Global Forum on Taxation reviewing issues of transparency and effective exchange of information. The Global Forum brings together representatives of more than 60 OECD and non-OECD governments to work toward establishing a global level playing field in terms of transparency and exchange of information in tax matters. Its next meeting is expected to take place in November 2005 in Australia. Bill McCloskey, Chair of the OECD?s Committee on Fiscal Affairs and Co-Chair of the Global Forum, said: ?We see this as a positive step towards better cooperation and look forward to Andorra?s participation in the process.?
To read the whole article (which includes the following topics in addition to the ones above) please click on the graphic below:Hong Kong Court refuses to revoke trustsUS and New Zealand clarify treatment of fiscally transparent entitiesCyprus signs money-laundering MOU with USUK to renegotiate tax treaty with ChinaBelgian tax amnesty yields €496mGibraltar gains EU passporting for insurance mediationSouth Africa introduces withholding tax on immovable property sales by non-residents