Offshore operators worried over recent revisions in Mauritius-India tax treaty
In a recent visit to India, Mauritius’ minister of good governance, Roshi Bhadain, renegotiated the tax treaty between Mauritius and India, under which the capital gain tax in Article 13 was amended, and this revision is creating swirls of discontent among offshore operators in Mauritius.(Image:e-cybercity.mu)
The negotiations over the double taxation avoidance agreement (DTAA) between India and Mauritius are in an advanced stage and investors are currently adopting a “wait and watch approach” in routing their money through Mauritius into India amid bilateral tax treaty uncertainties.
Negotiations to amend the Indo-Mauritius DTAA have been hanging fire for a long time over concerns that Mauritius is being used for round-tripping of funds into India – even though the island economy has always maintained that there has been no concrete evidence of any such misuse.
A Joint Working Group (JWG) was set up by the two countries to find a mutually acceptable solution. Here, it may be noted that Mauritius is one of the top sources of Foreign Direct Investment into India.
The share of Mauritius in investments routed by global businesses companies to India declined to 15.9% per cent in 2012 from 23.3% per cent in 2011, as per data compiled by the island’s Financial Services Commission (FSC).
Among others, Mauritius has agreed to the Limitation of Benefits (LOB) clause in the revised pact with India. The LOB is widely expected to help in preventing inappropriate use of tax pacts by third-country investors.
International Financial Services (IFS), a management company which depends on profits arising from offshore firms operating within the framework of the fiscal treaty between India and Mauritius, highlighted: “To amend Article 13 to transfer rights to tax capital gains in India will inevitably and significantly affect our offshore sector, because it is the exemption of capital gains tax that remains the main attraction of our financial center.”
Nikhil Treebhoohun, who was the managing director of Global Finance Mauritius (GFM) for three years, concedes that there is good reason for offshore operators be worried.
He said,”I do not know if the position of the industry has changed. At the time when I was at GFM, our position was clear, namely that we would not touch Article 13 on Capital Gains Tax without having in return solid guarantees on ‘Most Favoured Nation clause’. Essentially, this would amount to a condition that amendments to our tax treaty are applied at the same time as in the other jurisdictions with which India has reached similar agreements, and which will also be the object of renegotiations in the future.”
He concludes on the note that such an initiative would have had the merit of not favouring the other financial centers over Mauritius.