India-Mauritius DTAA: Need to prevent round-tripping, says D Subbarao

MUMBAI: The Reserve Bank of India Governor D Subbarao has said that there is a need to prevent round-tripping to prevent abuse of treaties, raising the pitch for tighter control on inflow of funds from dubious sources. Round-tripping is a form of barter that involves a company selling unused assets to another and agreeing to buy back the same or similar assets at about the same price.

“There is round-tripping and there is a need to prevent that,” Subbarao was quoted as saying by the Weekly magazine in Mauritius. “About the India-Mauritius DTAA, what I have understood is that it is up for some renegotiations to prevent and minimise abuses.” Subbarao’s comments add weight to the raging debate about the need for nations to plug tax havens that have become a menace. Many countries, including the US, the UK and India, are working on ways to bring tax evaders to book.

There are many tax havens such as British Virgin Islands and Cook Islands that provide tax benefits. Mauritius, an Indian Ocean island, has a treaty with India that enables companies registered there to enjoy a beneficial tax treatment in India. Subbrao said that other partner countries should also prevent roundtripping so that there should be no jurisdiction where this round-tripping is possible. He said that India should make sure there is no money generated through money laundering.

India is negotiating with Mauritius the double tax avoidance treaty through which foreign investors invests in India. To avoid misuse, the finance bill had said that investors need to provide a tax residency certificate to avail of the benefits under the India-Mauritius Double Taxation Avoidance Treaty.