India And Mauritius Still Head-To-Head Over Tax Treaty

by Lorys Charalambous, Tax-News.com, Cyprus

09 January 2007

Upcoming talks between Indian and Mauritian officials will focus on changes to the two countries' Double Tax Avoidance Treaty. Indian worries about abuse of the residence rules under the Treaty are holding up full implementation of a Comprehensive Economic Cooperation and Partnership Agreement signed last year.

Indian tax officials, with perhaps only lukewarm support from their government, hope that Mauritius will stiffen the requirements for tax exemptions under the DTAA. They point to a new protocol Mauritius has added to its treaty with China under which capital gains arising in Mauritius on the sale of Chinese assets will be subject to a 10% tax in China in some circumstances. The protocol came into force on 1st January.

The Indian tax authorities fear particularly that short-term stock market gains can be sheltered in Mauritius by Indian traders, a practice known as 'round-tripping'.

The Mauritian authorities did move to placate the Indians last year, tightening up on the issuance of Category 1 Global Business Licence applications for Collective Investment Schemes, Private Equity Funds, Venture Capital Funds, Investment Companies, CIS Manager, and Investment Adviser/Managers; but India wants further action before it will implement parts of the CECPA which will be highly favourable for Mauritian exports to India.

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