Mahinda Rajapaksa Current Affairs - 2020

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Cabinet Approves amendment of Double Taxation Avoidance Agreement with Sri Lanka

On February 12, 2020 the Union Cabinet approved the protocol to amend the DTAA (Double Taxation Avoidance Agreement) that was signed between India and Sri Lanka. The DTAA with respect to prevention of fiscal evasion is to be amended.

Highlights

Under the amendment, an anti-abuse provision is to be included. Also, the amendment will include Principle Purpose Test. This will help in curbing strategies that exploit gaps in tax rules.

Significance

Both Indian and Sri Lanka are members of major multilateral organizations such as OECD, G20, BEPS. Therefore, it is essential for both the countries to implement standards based on Multilateral Convention to Implement Tax Treaty related measures.

Why Principle Purpose Test?

India is a signatory of MLI, whereas Sri Lanka is not. Therefore, it is essential for the countries to insert Principle Purpose Test to meet the minimum standards

What is MLI?

In 2016, around 100 countries signed Multilateral Convention to Implement Tax Treaty. The treaty includes features that help to prevent Base Erosion and Profit Shifting. This is called Multilateral Instrument or MLI.

If a country has signed MLI along with India, it is not important to include Principle Purpose Test in the DTAA. As Sri Lanka is not a signatory, DTAA has been included.

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Sri Lankan Prime Minister visits India: Terrorism and Trade discussed

On February 8, 2020, the Sri Lankan Prime Minister Mahinda Rajapaksa held high level talks with PM Modi during his five-day visit to India. The leaders held talks about terrorism, trade and economic projects in New Delhi

Highlights

The meet will enhance mutual economic trade and investment. The leaders also discussed improving tourism and connectivity. On the side lines of the meet, PM Modi announced that India will provide a grant of 400 million USD for developmental projects in Sri Lanka. The countries also have plans to expand the housing projects undertaken by India in the island to all parts of the country. India has also allocated 50 million USD to help the country deal with terrorism.

It is to be noted that in 2019, India granted a line of credit of 450 million USD to Sri Lanka.

India-Sri Lanka

The location of Sri Lanka in the Indian Ocean has been strategic geopolitical relevance to many major powers. The Chinese are building gigantic modern ports in the Indian Ocean. It includes Hambantota (Sri Lanka), Gwadar (Pakistan), Kyauk Phru (Myanmar) and Chittagong (Bangladesh).

Therefore, it is essential for India to maintain close ties with the island nation to resist the increase of foreign presence in the IOR.

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