India today assured Mauritius the island nation’s concerns would be addressed while revising the tax treaty between the two nations. This followed visiting Mauritius Foreign Affairs and International Trade Minister Arvin Boolell saying commercial viability of the treaty with India must be protected.
Mauritius has expressed willingness to cooperate with India to revise the double taxation avoidance agreement (DTAA) to prevent its misuse by companies that do not have a genuine base in that country.
Boolell on Thursday called on his Indian counterpart S M Krishna and Prime Minister Manmohan Singh and raised concern on changing the basic tenets of the DTAA. The meeting came a week after India brought out the draft guidelines to the General Anti-Avoidance Rules (GAAR).
On India’s demand for reworking the DTAA, Boolell, at a joint press conference with Krishna, said, “When our prime minister came to Delhi, we submitted a series of proposals. These are being addressed. The Indian side has told us it would do nothing to harm the economic interests of Mauritius.” Mauritius Prime Minister Navinchandra Ramgoolam had visited India in February.
Boolell said, “Of course, we will constantly make room for improvement, in respect and in compliance with the best international practices.”
An India-Mauritius joint working group would meet on August 22-24 to hold negotiations on revising the DTAA. Officials said India had told Boolell it would look at all the concerns Mauritius had. “All these (concerns) would be discussed in the meeting. And, then we will see how to go about addressing these,” said a key official.
Speaking to Business Standard, Boolell said while Mauritius was willing to cooperate with India on revising the DTAA and address India’s concern on round tripping, commercial viability of the treaty must be protected. He added Mauritius wanted to maintain the sanctity of the treaty’s Article 13, which dealt with the issue of capital gains taxation. This means India’s demand to impose capital gains tax on foreign institutional investment from Mauritius might not be met easily.
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However, to address India’s concern, Mauritius has suggested India post a permanent representative at the Indian high commission in that country to assess the genuineness of foreign institutional investment into India from there. Indian auditors could also go to Mauritius to check the accounts and veracity of the companies based there.
India believes a host of companies located outside Mauritius merely re-route money from the island nation to avail of the DTAA benefits, a process called round tripping. “I am saying if there is any loophole that needs to be plugged on round tripping, we will do so,” Boolell said.
He added it must be ensured that the element of certainty remains the lynchpin of the treaty. “We need to ensure what is being done would serve the interests of both countries.”
Currently, India’s Circular 789 states if companies from Mauritius show tax residency certificates, they would not be taxed in India. However, India plans to implement GAAR from April 1, 2013, and this could override DTAAs. But if the circular remains, it would not be possible to bring foreign institutional investors from Mauritius under GAAR.
Boolell said if in the meeting in August, India sought more stringent conditions on these certificates, Mauritius would consider this. “But the sanctity of tax residency certificates must be protected,” he said, adding his nation had already imposed strict conditions on issuing such certificates. To avail of these certificates, companies have to hold at least a specified number of board meetings in Mauritius and have the details of bank accounts in order.