Indian Ruling Undermines Mauritian DTA

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

11 August 2011

A ruling from the Mumbai High Court has cast into doubt the use of structures in Mauritius to mitigate tax paid in India.

The case, Aditya Birla Nuvo Limited v The Deputy Director of Income Tax, relates to an Indian Joint Venture Company (JVC) established between AT&T, the Birla Group and the Tata Group. Under the terms of the JVC, shares in the company could be acquired by 100% subsidiaries of parties to the joint venture, reportedly the structuring's primary flaw.

AT&T USA, through its Mauritius subsidiary, AT&T Mauritius purchased shares in the joint venture, which were assigned to AT&T Mauritius.

When AT&T sought to sell its stock to the Birla Group and Tata Group, no tax was withheld at source, as per the terms of the double tax agreement between Mauritius and India, providing that where the sale of Indian shares is made by a Mauritius entity, the income is taxable only in Mauritius. AT&T Mauritius fulfilled the previously upheld requirement of holding a Tax Residence Certificate (TRC), obtained from Mauritian authorities.

However, the Mumbai High Court has ruled that despite the TRC, the deal was structured in such a way that the beneficial owner of the shares was AT&T USA, despite the purchase of shares being through its subsidiary, thereby negating the benefits of the Mauritius-India treaty.

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