Mauritius is set to revise the India-Mauritius DTAA.
Mauritius is set to revise the India-Mauritius DTAA.
The Mauritius government has opted to revise its Double Taxation Avoidance Agreement (DTAA) with India to align with the OECD's proposal on Base Erosion and Profit Shifting (BEPS).
DTAA, a bilateral treaty between nations, aims to prevent
double taxation for non-residents. India has signed DTAA agreements with 85
countries to protect non-resident Indians from dual taxation, ensuring
agreed-upon tax rates on income sourced from each country.
The India-Mauritius DTAA was signed in 1983, fostering over
$160 billion in foreign investments into India.
The key objective of this amendment is to curb tax avoidance
through exploitative tactics, upgrading the India-Mauritius tax treaty to a
covered tax agreement under BEPS MLI. This introduces anti-abuse and benefit
limitation rules, principal-purpose tests, and arbitration in the mutual
agreement process.
Multinational corporations with structures in India and
Mauritius may face stricter treaty rules due to BEPS MLI implementation.
BEPS, an OECD initiative, aims to combat tax avoidance by
standardizing anti-abuse rules across global tax agreements.
The updated India-Mauritius tax agreement under BEPS rules
may complicate investment routing into India, requiring entities to demonstrate
real substance beyond tax savings, although genuine investors can still benefit
from Mauritius tax incentives.
India played a significant role in developing BEPS consensus
globally, recognizing the need to balance investment and prevent misuse of
preferential tax rules by companies employing complex structures to avoid
taxes.
New anti-abuse rules target arrangements primarily aimed at
tax benefits, requiring entities to prove genuine commercial purposes beyond
tax planning.
India has employed strong domestic anti-avoidance laws since
2017 and mandates disclosure of intricate investor arrangements for timely risk
assessment.
In 2016, a decision was made to tax capital gains arising from investments in Indian companies for shares purchased after April 1, 2017, affecting investments from Mauritius and Singapore. Since then, FDI inflows from Mauritius decreased from $15.72 billion in 2016-17 to $6.13 billion in 2022-23, with Mauritius becoming India’s third largest FDI source
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