Mauritius has contributed to the largest foreign direct investment (FDI) inflow into the country at over Rs 2,00,000 crore since 2000 and up to November 2009, amid speculation that investors from other regions are also routing their money through the island nation to take advantage of the tax treaty.
FDI inflows from Mauritius stood at Rs 2,01,694 crore ($45.24 billion) from the April 2000-November 2009 period, accounting for 44 per cent of the Rs 4,86,480-crore foreign direct investment inflows into the country during the period.
The other big investors included Singapore, the US, Britain and the Netherlands.
While investors get higher returns on their money in India, those from Mauritius "get even higher returns on their capital, as we have a double taxation avoidance treaty (DTAT) (with the island nation)," Crisil principal economist D K Joshi said.
Of late, the government has reportedly found many cases of misuse of the DTAT with Mauritius, including round-tripping, and is working towards revising the treaty to prevent its further abuse by companies, domestic or foreign.
However, dismissing the notion that Mauritius is a tax haven, the island nation's Vice-Prime Minister Ramakrishna Sithanen recently said he had not received any complaints from New Delhi about routing investments via his country to evade taxes.
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Round-tripping is usually referred to as routing of domestic investments through Mauritius to take advantage of the DTAT to pay lower taxes on profits.
The services sector topped the table in attracting foreign direct funds, cornering as much as 22 per cent of the cumulative equity FDI inflows into the country during the period under review, followed by software, computer hardware, telecommunications and real estate.
The country has received $20 billion FDI during April-November 2009-10. In the fiscal year 2008-09, it was $27.3 billion.
The government has formed 'Invest India', a joint venture firm with industry body Ficci to attract more foreign direct investments into the country.