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

NEW DELHI SEEKS REVIEW OF TAX PACT WITH MAURITIUS

    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 the provisions are tightened in the treaty itself.

   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.

   Source said ‘treaty shopping', which was one of the major concerns of India, does not get plugged by the new set of requirements. Treaty shopping refers to investors from third countries with high tax rates, who route their investment 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 funds 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 the early 80s, 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 new conditions including making it compulsory for companies registered there to have two resident directors of repute from Mauritius.