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

MAURITIUS DOESN'T WANT TO BE SINGLED OUT ON TAX TREATY

FIIs using the Mauritius registration route to invest in Indian stock markets can breathe easy. The tax haven has insisted that its controversial double taxation avoidance agreement with India should not be re-written, unless all similar tax treaties signed by India with other countries, exempting capital gains tax waiver, were also amended.

Mauritius deputy prime minister and finance minister Rama Sithanen told reporters on Tuesday, “We should not be singled out. Instead, we want a balanced approach.” Acknowledging that “a lot of business comes to the nation because of the treaty,” he said they were open to any review of the DTAA provided there was a level playing field compared to other countries. “Keeping in view historical, cultural, political and diplomatic ties between the two countries, we need a global solution that will not penalise Mauritius ,” the deputy prime minister said.

The minister's comments are significant as finance minister P Chidambaram has said recently that India was reviewing the Indo-Mauritius double taxation avoidance treaty to stop misuse of its provisions. He was reacting to a demand made by the left parties supporting the UPA government for a thorough review of the treaty.

Mr Chidambaram had said some FIIs using the Mauritius route 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. Under this treaty, entities investing in Indian stock markets get an exemption from capital gains tax. Rama Sithanen claimed that to prevent misuse, companies have to now get an annual residency proof from the Mauritius government, instead of a one-time certificate.

The country has also made it mandatory for overseas investors to set up an office in the island and conduct their banking through Mauritius . This has sharply cut back on “round tripping”, the phenomena of Indian companies using this route to send black money back to Indian stock markets, Sithanen said. Promising close co-operation with the Indian authorities to block phenomena like overseas investors using shell companies in Mauritius , he said the Financial Services Commission of Mauritius and the Sebi have signed an memorandum of agreement to combat such misuse of the DTAA route. The country has also passed an anti-terror legislation to curb terrorist money using this route to enter the capital markets in India .

The Mauritius Deputy Prime Minister said the DTAA has benefited India , providing an easy entry route for FII and FDI, while Mauritius has also gained in overall economic terms.

He also said the country hoped to sign a Comprehensive Economic Cooperation Agreement with India by December. The CECA will include provisions for trade, mutual investment and avenues for bilateral co-operation. Mauritius is seeking to position itself as a financial services centre—a Global Business Centre for investment in the economy and as a banking platform for African countries and elsewhere.