The government is planning to clamp down on local entities claiming residentship status in Mauritius merely to avoid capital gains tax in India. This can have a direct impact on Indian corporate groups which take the overseas corporate body (OCB) route and set up subsidiaries in Mauritius. The government has stipulated a minimum NRI holding of 60 per cent in all OCBs.
A high-level team from the Central Board of Direct Taxes (CBDT) had visited Mauritius last month to discuss modification in rules under the double taxation avoidance treaty between the two countries.
Officials said a clause was likely to be introduced in the rules which would prevent local entities from calling themselves residents of Mauritius.
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The CBDT team has also managed to introduce a provision for enforcement of the information-sharing arrangement between the two countries even at the investigation stage.
Mauritius has become a tax haven for many local entities, called post-box companies, since they do not have any operations there and their sole aim in setting up office being avoidance of tax. According to finance ministry officials, the move will give sufficient leeway to the income tax department in collecting taxes from a section of such post-box entities. In India, short-term capital gains are taxed at 20 per cent.
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