The Government of the Republic of India and the Government of Mauritius have amended the India-Mauritius Double Tax Avoidance Agreement (DTAA) to focus on preventing tax evasion instead of promoting bilateral investment flows.
Background:
i.In February 2024, the Mauritius Cabinet of Ministers approved an amendment to the DTAA with India to align with the Organisation for Economic Co-operation and Development (OECD)’s proposal on Base Erosion and Profit Shifting (BEPS).
ii.India and Mauritius signed the protocol to amend the India-Mauritius DTAA in March 2023.
iii.India has signed the DTAA with 85 countries to safeguard non-resident Indians (NRI) from double taxation.
About the Amendment:
Aim: To exclude encouragement of mutual trade and investment and to include the intention of not providing treaty benefit that creates a situation of reduced taxation or non-taxation.
Highlights:
The expression “encouragement of mutual trade and investment” has been removed from the preamble of the agreement.
- This highlights the shift in the focus towards preventing tax evasion over promoting bilateral investment flows.
- This emphasises India’s commitment to international tax cooperation standards while raising critical considerations for investors leveraging the India-Mauritius corridor.
ii.A Principal Purpose Test (PPT) has been incorporated in the agreement.
- Under this, the tax administration can deny the tax treaty benefit if the principal purpose of the action undertaken by the taxpayer was to obtain a benefit.
- This aims to reduce tax avoidance by ensuring that treaty benefits are only granted for transactions with a bona fide purpose.
About India-Mauritius DTAA:
i.The Agreement was signed on 24th August 1982 and came into force on 1st April 1983.
ii.It stated that the capital gains tax had to be paid in the country where the foreign investor was based. Therefore the rate of capital gains tax in Mauritius was “Zero”.
iii.On 10th May 2016, the DTAA was amended and it was decided that in case of shares purchased after 1st April 2017, the capital gains arising from an investment in an Indian company will be taxed in India.
Additional info:
Mauritius is the 4th largest source of Foreign Portfolio Investor (FPI) flows with funds from Mauritius owning shares worth Rs 4 lakh crore, or 6% of total FPI assets in India.
About Mauritius :
President– Prithvirajsing Roopun
Prime Minister– Pravind Kumar Jugnauth
Capital– Port Louis
Currency– Mauritian Rupee
