India Amends Tax Treaty With Singapore, With Eye on APAs

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By Siri Bulusu

The Indian government has amended its tax treaty with Singapore to address the problem of untaxed income and open the door for the two countries to enter into bilateral advance pricing agreements.

In accordance with a “level playing field” provision in the Singapore treaty, the amendment reflects recent changes to the India-Mauritius tax treaty that phase out tax exemption of capital gains made on sale of Indian shares beginning April 1, 2017. The amendment also included the addition of Article 9(2) which will enable the two countries to enter into bilateral APAs, increasing certainty on transfer pricing deals.

India now has the right to tax capital gains accrued in Singapore upon alienation of shares in an Indian company as follows:

  •  Shares acquired before April 1, 2017 will be grandfathered and exempt from capital gains tax.
  •  Short-term capital gains made on Indian shares acquired after April 1, 2017, and sold before April 1, 2019, will be taxable at 50 percent of the domestic rate (which is currently 20 percent, creating a 10 percent tax liability).
  •  Indian shares acquired after April 1, 2017, and sold after April 1, 2019, will be taxable at the full domestic rate.
“The much awaited amendment to the India-Singapore treaty sets to rest the anxiety of the investors investing into India from Singapore,” Girish Vanvari, tax head and partner at KPMG India, told Bloomberg BNA in an e-mail Jan 3.

Foreign direct investment into India from Singapore was nearly $50.6 billion between April 2000 and September 2016, making up 16 percent of India’s total FDI in that period.

Curbing Black Money

Vanvari said the amendment will boost foreign exchange flows into India and curb black money being rerouted into India—an issue Indian Finance Minister Arun Jaitley called “round tripping” in his announcement of the treaty changes.

“Indian regulators have long suspected rich Indians and corporates to be routing their cash reserves” through an intermediary “into these tax jurisdictions,” Sanjay Kumar, tax partner at Deloitte India, told Bloomberg BNA in an e-mail.

Kumar said removing the tax exemption on capital gains via sale of Indian shares would “act as a disincentive for such round tripping.”

Tax professionals note that a clause determining a company’s substance in Singapore has existed since 2005, but that the test will be administered with increased scrutiny to assess the validity of a company’s claim on any tax benefit permitted by the treaty. The limitation-of-benefits clause requires a company to spend S$200,000 ($137,896) in operational expenses over two years prior to its sale of shares.

“As far as Singapore is concerned, they want investors with verified substance so that the maximum benefit goes to a genuine company maintaining staff and an office, not just a shell company who has a registered post box,” Uday Ved, a Mumbai-based chartered accountant, told Bloomberg BNA Jan. 3.

Ved added that investments from Singapore are likely be hurt by the amendment since many multinational corporations have offices headquartered there.

To contact the reporter on this story: Siri Bulusu at

To contact the editor responsible for this story: Penny Sukhraj at

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