India eyes DTAA with tax haven Luxembourg

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New Delhi, July 12: India has commenced talks with Luxembourg, Europe’s tax haven and the world’s richest country, for a new double taxation avoidance agreement (DTAA). If the process fructifies, the Grand Duchy, famous for competitive private banking, may emerge as a major investor in India.

Official sources said the plan was to structure the DTAA on the lines of the pact with Mauritius, a proven FDI booster. The recently-ratified Comprehensive Economic Cooperation Agreement (Ceca) with Singapore included a protocol to reinforce the existing DTAA with it on the lines of the Mauritius accord.

Luxembourg taxes individuals based on the concept of residence, irrespective of nationalities. Non-residents are liable to pay the government of Luxembourg tax only on certain types of income arising in that country or from sources there. The tax regime for corporates is also liberal with no capital gains tax.

The country offers near full bank secrecy and attracts savings of high networth individuals from major European countries like Germany, Belgium and France. Currently, banks in Luxembourg have fixed and floating assets of over $650 billion, the second largest in Europe after Switzerland ($810 billion). Over 220 banks, including subsidiaries of more than 50 German banks are currently operating in the country. Besides, there are nearly 1,300 investment funds and over 12,000 holding companies. The financial sector accounts for 22% of Luxembourg’s GDP, the other major industry being steel, with the presence of majors like Arcelor.