India And Mauritius Resume Tax Talks

by Mary Swire, Tax-News.com, Hong Kong

27 June 2011

India and Mauritius have agreed to further discuss the double tax avoidance treaty that currently exists between the two countries, with the aim of making revisions to the agreement.

Indian Finance Minister Pranab Mukherjee revealed on the sidelines of a recent conference that negotiations between the two governments, which have been ongoing for a number of years, had resumed after something of a pause.

The Indian government has for a number of years been pushing for changes to the treaty terms, which allow both resident Indian and foreign investors to route investment into India via Mauritius and take tax-free gains.

The island has traditionally ranked first among all countries in foreign direct investment (FDI) inflows to India, with cumulative inflows amounting to USD55bn over the past 10 years.

Last year, Milan Meetarbhan, the Chief Executive of Mauritius's Financial Services Commission (FSC), defended the tax treaty, arguing that Mauritius was not a tax haven. He denied that the treaty resulted in a high incidence of "round-tripping," whereby funds are transferred out of India and then transferred back as foreign investment into the Mumbai stock market via participatory notes. However he did agree to address Indian concerns on the matter through tighter checks on treaty abuse by Indian entities.

The Indian Finance Ministry wrote in April to the government of Mauritius requesting that additional clauses be added to their double taxation agreement enabling more information to be exchanged for tax purposes.

There is an Indian Income Tax Overseas Unit in operation in Mauritius, which is used for the exchange of information, speeding up of the resolution of tax disputes and to assist in transfer-pricing cases, however it is not engaged in the tax collection process directly.

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