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India Seeks Review Of DTA With Mauritius

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

14 December 2004


According to reports in the regional media, the Indian government is seeking a review of the country's double taxation avoidance agreement (DTAA) with Mauritius, and is prepared to use both incentives and threats to achieve its goal.

The changes sought by the Indian authorities include shifting the DTAA's emphasis from residence-based taxation to source-based taxation. A tightening of the limitation of benefit clause in the agreement to halt so-called treaty shopping by companies from high tax countries is also being sought.

However, the DTAA can only be amended if both parties are in agreement on the matter, hence the adoption by the Indian authorities of what some commentators have dubbed the 'carrot and stick' approach.

The carrot in this case is a $100 million line of credit via the Exim Bank of India, designed to help Indian companies establish themselves in Mauritius.

The stick is the possibility that if the Mauritian authorities do not agree to review the DTAA, similar tax benefits will be afforded by the Indian authorities to countries such as Singapore, meaning that the jurisdiction would lose its privileged status.

Speaking last Friday, Indian Finance Minister, P Chidambaram confirmed the creation of a model DTAA, explaining that:

"We would like to revisit the DTAA with Mauritius on some aspects, but there are diplomatic and political implications involved."


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