8/31/2016 Government Says Revised Mauritius Treaty To Curb Tax Evasion – NDTV Profit

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Government Says Revised Mauritius Treaty ToCurb Tax EvasionPress Trust of India | Last Updated: August 29, 2016 20:14 (IST)

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New Delhi: Revised tax treaty with Mauritius, which allows India to tax capital gains oninvestments routed through the island nation, will tackle round tripping of funds and curbtax evasion, the Finance Ministry said on Monday.

Following the decade-long negotiations, India and Mauritius signed the amendment to the1983 Double Taxation Avoidance Convention (DTAC) on May 10, and was noti᐀�ed by theIndian government on August 11.

"The Protocol will tackle treaty abuse and round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the ᴀow ofinvestment and stimulate the ᴀow of exchange of information between the two contractingparties."

"It will improve transparency in tax matters and will help curb tax evasion and taxavoidance," a Finance Ministry statement said.

Under the amended treaty, India will impose capital gains tax at 50 per cent of the prevailingdomestic rate for two years beginning April 1, 2017. Full rate will apply from April 1, 2019.

But this concessional rate would apply to a Mauritius resident company that can prove thatit has a total expenditure of at least Rs 27 lakh in the African island nation and is not a 'shell'company with just a post of᐀�ce address.

"The Protocol also provides for updating of the Exchange of Information Article as per theinternational standard, provision for assistance in collection of taxes, source-based taxation

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8/31/2016 Government Says Revised Mauritius Treaty To Curb Tax Evasion – NDTV Profit

http://profit.ndtv.com/news/economy/articlegovernmentsaysrevisedmauritiustreatytocurbtaxevasion1451830 2/3

of other income, amongst other changes," the ministry said.

India received as much as $8.3 billion foreign direct investment (FDI) from Mauritius last᐀�scal year.

The Finance Ministry said that the Protocol provides for source-based taxation of capitalgains arising from alienation of shares acquired on or after April 1, 2017, in a companyresident in India with effect from ᐀�nancial year 2017-18.

It also said that investments made before April 1, 2017 have been grandfathered and willnot be subject to capital gains taxation in India.

Nangia & Co managing partner Rakesh Nangia said certain investments were routedthrough Mauritius, solely for purpose of taking the bene᐀�t of capital gain tax exemption,because of the lenient residency rules of Mauritius.

"The protocol shall increase India's tax take by tackling this treaty abuse and also byrestricting the bene᐀�cial provisions during the transition period (2017-2019) only to thosehaving substantial economic activities in Mauritius," Mr Nangia said.

The protocol further provides for source-based taxation of interest income of banks,whereby interest arising in India to Mauritian resident banks will be subject to withholdingtax in India at the rate of 7.5 per cent in respect of debt claims or loans made after 31stMarch, 2017.

However, interest income of Mauritian resident banks in respect of debt-claims existing onor before March 31, 2017 shall be exempt from tax in India as per existing provisions in theConvention.

The three-decade-old taxation treaty, which came into force from April 1, 1983, is said tohave been misused by many Indian and multinational companies to avoid paying tax or toroute illicit funds.

The DTAC till now provided that capital gains on sale of assets in India by companiesregistered in Mauritius can only be taxed in Mauritius. While short-term capital gains aretaxed at 15 per cent in India, they are exempt in Mauritius.

So, such companies escape paying taxes in both countries.

A large proportion of foreign investment in the stock market comes through companiesregistered in the Indian Ocean island nation and are exempted from tax in India under thetreaty.

"Giving teeth to the exchange of information clause, Indian Tax Authorities would now beable to request information that is 'foreseeably relevant' instead of the erstwhile'necessary'," Mr Nangia said.

Story ᐀�rst published on: August 29, 2016 20:14 (IST)

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