These decisions enable tax abuse, and as is being increasingly understood, tax abuse is a human rights issue. Under this Double Taxation Avoidance Agreement Mauritian-based companies selling shares of Indian companies are effectively exempt from capital gains tax. This encouraged tax avoiders to route investments into India through Mauritius based shell companies, leading to lots of tax revenue foregone. This treaty has now been amended after years of negotiations between the two countries.

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How Sonia saved this government. Remdesivir use may be managed by government. Government frees exports of Paracetamol APIs. Government plans to ban 27 pesticides. Government to stop daily Covid briefings. All rights reserved. For reprint rights: Times Syndication Service. Politics and Nation. Defence Defence National International Industry. Company Corporate Trends Deals. International Business World News. Market Watch. Pinterest Reddit. NEW DELHI: Government has notified the revised tax treaty with Mauritius under which India will impose capital gains tax on investments routed through the island nation from April 1 next year in a bid to curb tax evasion.

The protocol amending the agreement between India and Mauritius, signed on August 24, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and for the encouragement of mutual trade and investment, was signed at Mauritius on May 10, Under the amended treaty with Mauritius, for two years beginning April 1, , capital gains tax will be imposed at 50 per cent of the prevailing domestic rate. Full rate will apply from April 1, This concessional rate would however apply to a Mauritius resident company that can prove that it has a total expenditure of at least Rs 27 lakh in that nation and is not a 'shell' company with just a post office address.

As per the revised treaty, investments made prior to April 1, , will be protected from new tax provisions. The island nation with just 1. The three-decade-old taxation treaty is said to have been misused by many Indian and multinational companies to avoid paying tax or to route illicit funds. India had been insisting on review of the treaty since as it felt a chunk of the funds were not real foreign investments but Indians routing cash through the island to avoid domestic taxes, a practice known as "round tripping".

It wanted to ensure firms in Mauritius that invest in India are not just 'shell' and instead have substantial operations in the island, such as paying staff there, before qualifying for treaty terms of getting exemption from payment of capital gains tax in India.

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The Double Tax Avoidance Agreement between India and Mauritius

The Indian Revenue have in the past questioned the eligibility of capital gains tax exemption under the Tax Treaty on the ground that the Mauritian Company has no real commercial substance and it has been merely set-up for Treaty Shopping. This approach has resulted in significant long-drawn litigation in a number of cases involving investments in India through Mauritius. Article 13 4 of the DTAA provides that the profits made by a resident of a contracting state from the alienation of shares shall be taxable only in that state. However, the debate is not yet settled down despite the Apex Court ruling and the tax authorities have been examining investments from Mauritius and have sought to deny the Treaty benefits under the pretext of Treaty Shopping. The applicant in this case sold its entire stake in Quippo Telecom Infrastructure to another Mauritius based Company. Gains derived by a resident of a Contract State from the alienation of any property other than those mentioned in paragraphs 1 , 2 and 3 of this article shall be taxable only in that State.


How the misuse of India’s treaty with Mauritius is leading to tax revenue loss

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