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Mauritius Round-Tripping Grumbling Continues

by Lorys Charalambous,, Cyprus

07 November 2008

A proposal by Japan Tobacco International's Mauritius operation to increase its stake in its Indian arm from 50% to 74% has come under fire from several sides.

The proposed increase, currently under consideration by India's Foreign Investment Promotion Board (FIPB), has been cautioned against by the Finance Ministry, which argued that allowing such a move would constitute a tacit approval of 'treaty shopping', a particular bugbear of the Indian authorities when it comes to companies routing investment via Mauritius.

The tax treaty between Mauritius and India, which had underpinned the emergence of Mauritius as the dominant channel for foreign direct investment (FDI) into India, first came under attack from Indian tax authorities in 2002 as a result of alleged abuses by Indian-resident investors, and has been a source of controversy ever since.

In addition to the objections to the proposed stake increase from a tax point of view, the Health Ministry has also weighed in, calling for tougher FDI restrictions on tobacco manufacture, or even a complete ban on foreign investment in the sector.

The matter is being reviewed by the cabinet, but the outcome for Japan Tobacco International specifically, and for the tobacco manufacturing sector generally, remains uncertain.

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