Long accused of being a route for avoiding taxes of foreign investments into India, Mauritius said it had put additional safeguards in place to thwart such wrong perceptions and to boost its image as a preferred global financial centre.
Mauritius' integrated financial sector regulator, Financial Services Commission (FSC), has put in place "greater substance requirements" for global business companies operating from its jurisdiction, to ensure their substantial presence there, and not just a "proxy address" to benefit from tax treaties with India and other nations.
"These additional requirements being imposed on global business category-1 companies will lead to the creation of more economic nexus between those companies and the economy of the island," FSC chairperson Marc Hein said.
Most global investors use the GBC-1 route to make investments into India and other countries through Mauritius. Asked whether these safeguards would help put in place greater checks on round tripping and money laundering concerns, Hein said these companies would now "interact more with our economy, provide more jobs to our people, rent more offices, spend more money and indeed keep on paying more taxes."
"Similarly, it will then be difficult to contest the fact that such companies are truly tax residents of Mauritius as they will have an enhanced presence in the jurisdiction," said Hein, who was here for an international taxation conference.
To further ring-fence its jurisdiction from any attempts of round-tripping and money laundering activities, Mauritius has agreed to include a "limitation of benefits (LOB)" clause in its revised tax treaty with India. While specific details of this clause in India-Mauritius tax treaty are being ironed out, LoB clauses are typically aimed at preventing "treaty shopping" or inappropriate use of tax pacts by third-country investors.
The LOB clause limits treaty benefits to those who meet certain conditions including those related to business, residency and investment commitments of the entity seeking benefit of a Double Taxation Avoidance Agreement. Besides, a Tax Information and Exchange Agreement between India and Mauritius has been finalised.
"We hope that the agreement will be signed by both parties whenever both governments are ready for this. In fact Mauritius has been fully cooperative to furnish information whenever reasonable information has been requested to the Mauritian authorities. The FSC and Sebi (India's capital markets regulator) have been exchanging information for years," he said, while adding that the Mauritian Financial Intelligence Unit is also cooperating with the Indian FIU for exchange of information.
India's share in the number of investments made by global companies through Mauritius almost halved in the past two years even as Africa's share has surged significantly, amid uncertainties over the bilateral tax treaty.
According to figures compiled by FSC, the share in the number of investments made by global business companies into India slumped to 15.87 per cent in 2012. In 2010, India's share was as high as 32.27 per cent, before declining to 23.25 per cent in 2011.
"A few years back, Mauritius was largely dependent on the Indian market but the African strategy adopted showed positive results," FSC had said in its latest annual report for 2012. "A large part of investment is now directed towards Africa, thus reducing the dependence on India. Such a result reveals not only the market is now diversifying but also that investment has increased."
In November, Mauritius was listed among jurisdictions that are "largely compliant" with global tax laws by Paris-based Organisation for Economic Cooperation and Development. According to OECD, that sets global tax standards, 18 jurisdictions were compliant, 26 were largely compliant, two were partially compliant and four were non-compliant. Besides India, other jurisdictions that are compliant include Australia, Belgium, China, Finland, France, Isle of Man, South Africa and Spain.
