In a bid to curb tax evasion, the Indian Union Council of Ministers last Wednesday approved amendments to the existing Double Tax Avoidance Agreement (DTAA) with Sri Lanka.
The agreement was inked between India and Sri Lanka in January 2013 and entered into force in October the same year.
Addressing a press briefing, Union Minister Prakash Javadekar said the Cabinet approved the signing and ratification of the protocol amending the agreement in order to avoid double taxation and to prevent fiscal evasion with respect to taxes on income.
“Updating of preamble text and inclusion of Principal Purpose Test (PPT) – a general anti-abuse provision in DTAA – will result in curbing tax planning strategies which exploit gaps and mismatches in tax rules,” an official release said.
India and Sri Lanka are members of the inclusive framework and as such are required to implement minimum standards under G-20 OECD BEPS Action Reports in respect to their DTAAs.
Minimum standards under BEPS Action-6 can be met through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) or through bilateral agreement.
Although India is a signatory to MLI, Sri Lanka is not. Therefore, amendments to the India-Sri Lanka DTAA are required to be updated in the preamble and incorporated in PPT provisions to meet the minimum standards on treaty abuse under Base Erosion and Profit Shifting (BEPS).