The Union Cabinet on Wednesday approved amendments to the existing double tax avoidance agreement with Sri Lanka, a move aimed at curbing tax evasion.
The existing Double Taxation Avoidance Agreement (DTAA) between India and Sri Lanka was signed in January 2013 and entered into force in October the same year.
The Cabinet approved the signing and ratification of the protocol amending the agreement between India and Sri Lanka for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, said Union Minister Prakash Javadekar at a press briefing.
"Updation of preamble text and inclusion of Principal Purpose Test, a general anti-abuse provision in the DTAA will result in curbing of tax planning strategies which exploit gaps and mismatches in tax rules," said an official release in this regard.
India and Sri Lanka are members of the inclusive framework and as such are required to implement the minimum standards under G-20 OECD BEPS Action Reports in respect of 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 agreement bilaterally.
India is a signatory to the MLI. However, Sri Lanka is not a signatory to the MLI as of now.
Therefore, amendment of the India-Sri Lanka DTAA is required to update the Preamble and also to insert Principal Purpose Test (PPT) provisions to meet the minimum standards on treaty abuse under Base Erosion and Profit Shifting (BEPS) Project.