Seven out of 11 proposals deferred for decision by FIPB have links with Mauritian entities.
The government is adopting a cautious approach in allowing foreign investment from Mauritius. In the last meeting of the Foreign Investment and Promotion Board (FIPB) on February 12, seven out of 11 proposals that were deferred for decision had links with Mauritian entities.
The deferred proposals involved an investment of over Rs 2,800 crore. Sources said in all these cases, the Department of Revenue, under the finance ministry, had raised the issue of “treaty shopping” in its response to FIPB.
The deferred proposals included that of Tikona Digital Network, Etisalat DB Telecom Private Ltd, Essar Capital Holdings and Aster Infrastructure. Besides, a proposal from Shree Ram Urban Infrastructure for foreign direct investment (FDI) worth Rs 90 crore by two Mauritius-based investment services companies and one fund was rejected. The revenue department had questioned the source of money for the investment.
Curiously, three proposals out of 12 approved had links with Mauritius. They were approved despite the department’s objection to ‘treaty shopping’. The term ‘treaty shopping’ is used for round-tripping of investment by Indian entities through Mauritius taking advantage of the double taxation avoidance agreement with that country. It results in a loss of revenue to the Indian government.
Of the three proposals that were approved, one related to a Rs 360-crore equity infusion by Mauritius-based Strategic Road Investment Ltd for picking up 98 per cent in Soma Highway (Toll) Projects Pvt Ltd. The two proposals were of Destimoney Enterprises and Zee Entertainment Enterprises but neither of them involved any FDI flow.
In the cases of both Soma and Destimoney, the department of revenue raised the issue of treaty shopping. It objected to the Zee proposal on the grounds that transfer of 30 million shares of ZEEL from Mauritius-based Delgrada Ltd to Mauritius-based Essel Holdings will not attract capital gains tax due to the existence of treaty between the two countries and that the transferee will get the same advantage when it sells the shares in future.
| PLAYING IT SAFE |
| # Seven of the 11 proposals on which decision was deferred had links with Mauritian entities |
| # The deferred proposals involved an investment of over Rs 2,800 cr |
| # Three of the 12 approved projects had links with Mauritius. These were approved despite objection to ‘treaty shopping’ by the revenue department |
| # India has reportedly found many cases of misuse of the double-taxaton avoidance agreement with Mauritius and is working on revising the treaty to prevent its abuse |
India has reportedly found many cases of misuse of DTAA with Mauritius and is working to revise the treaty with it to prevent its abuse by companies, domestic or foreign. The Mauritian government, however, has said that India has not reported any case of round-tripping to it.
In April-October 2009, India received about $18 billion in FDI and nearly half of it — around $8 billion — came from Mauritius. Mauritius Vice-Prime Minister Ramakrishna Sithanen had last month told Business Standard that the notion that the island country was allowing Indian money being routed back to India through their country was a “wild accusation”.
