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India And Mauritius Broaden Information-Sharing Agreements

by Lorys Charalambous,, Cyprus

13 December 2002

The problems between India and Mauritius centering around the interpretation of 'residence' in the two countries' Double Tax Avoidance Agreement (DTAA) are currently under examination in the Indian Supreme Court, which is considering an appeal by the Indian Government against a High Court ruling which supported Indian tax inspectors who had attacked 'foreign institutional investors' (FIIs) who they said were claiming Mauritian residence despite being wholly or mainly Indian-owned.

At least in popular perception, the case has widened into consideration of whether foreigners should be allowed tax incentives to encourage investment in India. In case this seems a no-brainer, remember that protectionist industries the world over use any technique available to deter foreign competition, and ask yourself why a grossly under-invested country like India would want to deter foreign investors, incentivised or otherwise. The Indian government, to its credit, has seen off several previous attacks on the DTAA, and may win the current battle as well.

However, both governments are taking the opportunity to review the structure of their agreements, to make sure that they are consistent with contemporary international norms. One of the main results will be a considerable enhancement of the level of information-sharing between the two countries.

The new framework of co-operation between Mauritius and India will not only include the sharing of information on Mauritius-registered foreign institutional investors and overseas corporate bodies, but also rights to investigate questionable security market transactions on Indian bourses. Sushil Khushiram, Mauritius Minister of Economic Development, Financial Services and Corporate Affairs, stated that his country’s financial intelligence unit would open another communication channel with India on money laundering. “We expect to sign a memorandum of understanding (MoU) with India on this next year,” he said.

According to Khushiram, the law which replaced the Mauritius Offshore Business Activities Authority with the more powerful Financial Services Commission in December 2001, now provides for information-sharing between the commission and the Securities and Exchange Board of India (Sebi).

“We are finalising the text of the agreement with Sebi, which will lay out clear guidelines on the exchange of sensitive information,” he said.

Any request for information from India should be supported by prima facie evidence, Khushiram said, adding that the scope of the MoU also provided for the sharing of unsolicited information in cases of fraud and malfeascance. Tax-related issues between the two countries could be dealt with under the double tax avoidance agreement, he said.

The minister said most of the concerns raised in India on the double tax avoidance agreement were due to lack of information. Once the three distinct channels of communication on market irregularities, tax issues and money laundering were in place, there would be no need to review the double tax avoidance treaty, Khushiram said.

Khushiram said Mauritius remained keen on attracting investment from India. He said in order to promote the inflow of funds in the information technology sector, the corporate tax on foreign infotech companies in Mauritius was just 5%, compared to the normal rate of 15%. Infosys Technologies was in the process of setting up a disaster recovery cell in Mauritius, he said, adding that several companies like Wipro, Satyam and Tata Consultancy Services (TCS) had also shown interest.

Denying that Mauritius was a tax haven, Khushiram said that the country relied largely on indirect taxes for income. “Nearly 80% of the total tax revenues come from indirect taxes,” he said.

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