Big changes to India-Mauritius DTAA?
Mauritius’ former finance minister claims that his country has given up the right to tax capital gains. This has raised questions regarding the scope of the renegotiation of the India-Mauritius Double Tax Avoidance Treaty (DTAA)
Former finance minister of Mauritius says renegotiated tax treaty with India will have devastating effect on Mauritius. Mauritius’ former finance minister claims that his country has given up the right to tax capital gains. This has raised questions regarding the scope of the renegotiation of the India-Mauritius Double Tax Avoidance Treaty (DTAA).
CNBC-TV18’s Menaka Doshi reports, we know that the treaty is being re-negotiated. India has for long wanted a limitation of benefits clause, like the one in the India-Singapore CECA. But Mauritius media reports suggest the re-negotiation goes far deeper. A story by La Defi Media Group quotes the former finance minister of Mauritius – Rama Sithanen.
He is quoted as saying, “I am deeply shocked. The memorandum of understanding reached between India and Mauritius announced the end of the success of our financial sector.”
He said: “It is incomprehensible that Mauritius has agreed to amend article double taxation avoidance 13 of the agreement with India. Mauritius will no longer have the right to charge the capital gains tax.”
“The protocol will have a devastating effect on Mauritius. In a few years, growth will experience a rapid decline. Part of the offshore sector will disappear”
Article 13 is the article that determines levy of capital gains tax.
It is not clear how Sithanen arrived at this conclusion. In another article he says he has come to know of this via “detailed research and discussion with many stakeholders”.
Meanwhile Mauritius media has also carried reactions of current government officials. Roshi Bhadain, minister of financial services in Mauritius has denied Sithanen’s information. Bhadain has been quoted to say that “Investors have nothing to fear and that the new agreement opens up more opportunities in the sector”
So it’s not clear if Sithanen is right about the information he has. Also this information we have drawn is from online media. But the Indian tax fraternity is abuzz with this and I thought it would be useful to bring to your attention.
According to Sajeet Manghat of CNBC-TV18 sources indicate Mauritius is inclined to follow international trend.
While Sources close to the finance ministry of Mauritius refused to comment on the specifics of the Indo-Mauritius Tax Treaty being negotiated, they gave CNBC-TV18 a sense of the thinking within the Government of Mauritius.
The Sources clarified that when something is not ratified it is not complete, implying that the negotiated Indo-Mauritius DTAA is yet to be signed by both the countries.
The renegotiated tax treaty will be based on certain factors which include global trends in Double Tax Avoidance Agreements:
a. How financial Services regulations are moving globally
b. How India formulated regulations for its own GIFT-City
c. OECD’s base erosion & profit shifting
d. And double taxation should be avoided
The sources also explained that all countries are re-looking at tax agreements that have potentially created loopholes. Sources argue that countries need to follow international norms or get treated as tax havens. The context of how DTAA was signed 20 years ago may not hold today.
Sources further argue that Limitation of Benefits (LOB) as it is called have been part of couple of tax treaties recently and is seen as a safeguard against tax avoidance.
Shreen Bhan of CNBC-TV18’s says, the view coming in from sources in North Block are not saying anything at all with the exception of saying that the DTAC is in advanced stages of negotiations and it is expected to be finalised in the near future. So, we can expect an announcement or at least a ratification of the treaty agreement very shortly but nothing on specifics on any of the issues that we have just discussed here.
