What changes do we see with new changes in DTAA from Capital Gains Tax to effect in 2017 incorporations Do invest-in-India but thru Singapore to take advantage of the DTAA!

1. Singapore Corporate Service Provider
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2. What are the Implication for
Singapore?
• The amendments are made to prevent tax avoidance
attempt known as ‘round-tripping’.
• The renegotiation of tax treaties with partners concurs
with its commitment to curb tax evasion and tax
avoidance.

3. Capital Gains Tax

4. By virtue of the latest amendment the exemption of capital gains
arising from alienation of share will be phased out from 1 April 2017,
whereby
• The Exemption will continue arising from the alienation of shares
acquired before 1 April 2017, subject to Limitation of Benefits
(LoB) conditions.
• For capital gains arising from the alienation of shares acquired
after 1 April 2017, 50% of the prevailing tax rate, in the country
where the company whose shares are alienated is resident will be
applicable.

5. Associated Enterprise and Transfer Pricing

6. Article 9 has been amended to provide for both countries to enter
into bilateral discussions for the elimination of double taxation
arising from transfer pricing. Accordingly, taxpayers can claim
corresponding tax adjustments in the event of disputes arising in
the cross-border transaction. Consequently, the tax on the enhanced
income derived after transfer-pricing adjustment, if charged by one
country then the other treaty partner would provide a corresponding
relief.
Associated Enterprise and Transfer Pricing

7. Domestic Laws

8. The 2016 protocol introduce a new article which explicitly provides
that the Indian-Singapore tax treaty shall not prevent either of the
countries from applying its domestic laws and measures concerning
the prevention of tax avoidance or tax evasion.
Domestic Laws

9. Impact of Amendment
• There is no capital gains tax in Singapore, so Indian residents
investing in Singapore will remain unaffected by the changes.
• The existing Singapore investors holding shares in India will remain
unaffected and will still be able to enjoy tax exemptions on capital
gains from the alienation of shares during and after the transition
period, i.e. 31 March 2019.
• The potential Singapore investors who invest in Indian equities
after 31 March 2017 will have to factor in the potential tax liability
on alienation.

10. Impact of Amendment
• FPI have enjoyed tax exemptions on gains arising from the
alienation of shares held in listed companies, irrespective of
trading frequency and holding period of such shares. Such
investments made after 1 April 2017 will be affected by the
revised terms.
• Likewise, gains from the alienation of unlisted shares is treated as
short-term capital gains and they are subjected to 15% tax
presently but they will benefit with the revised terms and will be
subjected to 7.5% during the transition period and 15% after 31
March 2019.

11. Impact of Amendment
• Gains arising for a Singapore resident, from the alienation of other
securities such as convertible debentures, will remain taxable in
Singapore. The fulfilment of LoB, in such cases of exemptions, may
not be required for such gains.
• Both Indian and Singapore-based companies have subsidiaries in
located in each other’s territories; hence the volume of associated
party transactions and the potential for disputes is significantly
high. The latest protocol improves access to Mutual Agreement
Procedure for dispute resolution and may even expedite
resolution.

12. Mauritius Vs Singapore

13. Mauritius Vs Singapore
The amendments made to both DTAs are broadly congruent,
except for the LOB clause, introduced in Mauritius only in the
latest protocol as against Singapore, where it was introduced
since the 2005 protocol. One significant difference that may
create an arbitrage for Mauritius is the clause on tax on
interest earned via debt instruments.

14. Debt Instruments

15. Debt Instruments
• It must be noted that unlike the revised India-Mauritius DTA, the
third protocol of India–Singapore remains silent on the treatment
of debt instruments. The Mauritius DTA states that the interest
incomes gained on the debt instruments entered into after 31
March 2017, will be subjected to 7.5% tax rates in the source
country. The same withholding tax on interest in the case of India-
Singapore DTA is 15%, Mauritius scores over Singapore with the
new revised rate. We have to wait and see how the situation pans
out for Singapore.

16. Will the amendments affect Singapore as a
preferred route to India?

17. Will the amendments affect Singapore as a
preferred route to India?
• Mauritius’ position as a top source country started weakening post
amendments to DTA and Singapore overtook Mauritius as the top
source country with FDI investment of $13.6 billion in 2015-2016.
• Investors are not simply attracted to Singapore because of the tax
advantage, but because of other strategic merits as well.
• India is on the renegotiation spree with all other treaty partners as
well, so relative advantage, if any, possessed by India’s other
treaty partners will eventually diminish. Singapore will continue to
retain its dominance as a top FDI source for India.