INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

INDO-MAURITIUS TAX TREATY UNDER REVIEW

FINANCE minister P Chidambaram on Friday said the government was reviewing the Indo-Mauritius Double Taxation Avoidance Treaty to stop its misuse. The Mauritius route has often been used by Indian companies to do round tripping of their funds and to show them as genuine FII investment in the domestic stock markets. However, Chidambaram made it clear that only some provisions of the treaty were up for review.

The review has been prompted by the suggestions made by the Comptroller and Auditor General of India (CAG) to plug the possible misuse of the Indo-Mauritius taxation treaty by residents of other countries and shell companies.

The CAG has now asked the Central Board of Direct Taxes (CBDT) to consider giving instructions to assessing officers to ensure that third country residents do not get the benefit of capital gains tax waiver on income from sale of shares under
the Indo-Mauritius tax treaty.

Referring to the companies registered under the ‘GBC1' category, the minister said some of them may have taken tax advantage. “We believe there has been some kind of treaty-shopping and perhaps unfair advantage of DTAA,” by some of these companies, he remarked. GBC1 category refers to companies engaged in qualified global business, carried on from within Mauritius with persons who are residing outside the island. Business by this category is conducted in a currency other than the Mauritian rupee.

Finance minister refused to disclose more details about the review. “We are formulating some proposals. They are very sensitive and we have to proceed carefully,” he added.

The minister also said he was not against genuine Mauritian companies, but only against those enjoying advantages. “We will have to stop them”, he noted.

The minister also said he was confident that those who indulged in treaty shopping by taking unfair advantage of the tax exemptions could be stopped.