India wants to review tax treaty with Mauritius

NEW DELHI: India wants Mauritius to do more to prevent the abuse of the double taxation avoidance treaty (DTAT). New Delhi will push for a wholesale review of the treaty, so that the misuse of provisions is tightened in the treaty.


While Mauritius may have stiffened tax residency certificate norms for overseas companies, in a recent circular, this may still not be enough to address New Delhi’s core concerns, sources said. They said ‘treaty shopping’, which was one of the major concerns of India, does not get plugged by the new set of requirements.

‘Treaty shopping’ basically refers to the investors from third world countries with high tax rates,
who route their investments into India through Mauritius. There have also been cases of ‘round-tripping’ of investment which India wants to plug.

Round-tripping of investment occurs when domestic fund go out and come back into the domestic capital market as investment to avoid capital gains tax incidence.

New Delhi will push for tightening of these provisions in the re-negotiation of the treaty with Mauritius.
India receives substantial chunk of its foreign investment from Mauritius, including portfolio investment in the stock markets. The tax benefits available under the DTAT, signed in early eighties has been the core incentive for this trend.
The Mauritius revenue department had issued a circular on October 3 laying down enhanced procedures for issue of tax residency certificate.

The circular has introduced some new conditions including making it compulsory for companies registered there to have two resident directors of repute from Mauritius.

Also, all meetings of the board of the companies registered in the island, will have to be held, chaired and minuted in Mauritius. It would also have to ensure that all banking transactions are routed though an account in Mauritius.