India and Finland on Friday revised their tax treaty to help better exchange of information on tax evaders. Both countries also agreed to bring down the withholding tax rates on dividends from the existing 15% to 10%.
As per the revised agreement, the contracting parties "shall not deny furnishing of the requested information solely on the ground that it does not have any domestic interest in that information or such information is held back by a bank". Another clause has been added to the revised agreement which restricts the powers of a resident to prevent misuse of the Double Taxation Avoidance Agreement (DTAA).
"The lowering of withholding tax will promote greater investments, flow of technology and technical services between the two countries," according to a press note issued by the Central Board of Direct Taxes (CBDT).
This will also ensure assistance in collection of taxes when such taxes are due under the domestic laws and regulation, it added.
The new pact was signed by CBDT chairman S S N Moorthy and Finland's ambassador Terhi Hakala here.
Talks between India and Switzerland are in progress on including a similar amendment in their existing DTAA. The pressure has been mounted on the Swiss authorities after the G-20 meeting in London where the finance ministers of developing and developed countries laid emphasis on a concerted move to crack down on tax havens.
The FMs of the G-20 nations adopted a resolution at the end of the meeting calling for "an effective programme of peer review, capacity building, and counter measures to tackle non-cooperative jurisdiction that failed to make regulatory standards, anti-money laundering and combating financing of terrorism".
The revenue department in the finance ministry has been from time to time negotiating fresh tax treaties with countries with which it has no such arrangement and revising the existing treaties where liberal clauses are replaced with more stringent reporting mechanism to avoid any round tripping, a method by which businessmen route money through some of the tax havens avoiding taxes.
In the past few years, India has had several rounds of talks with Mauritius to renegotiate the DTAA seeking to curb companies indulging in round tripping of investments. However, no agreement has been reached yet.