Mauritius assures India will not allow shell companies
Lutchmeenaraidoo, who met foreign minister Sushma Swaraj, played down the issue of misuse of the India- Mauritius Double Taxation Avoidance Convention (DTAC).
Mauritius will make it difficult for shell companies using a liberal and controversial bilateral tax treaty with New Delhi to evade taxes in India, said the island nation’s finance minister, Seetanah Lutchmeenaraidoo, on Friday.
The finance minister’s visit precedes dialogue between the two countries on June 29-30 to fine tune the treaty.
“We want investors to come to Mauritius to add substance to what they do. We will refuse shell companies because they are of no use to us,” said Lutchmeenaraidoo.
Lutchmeenaraidoo, who met foreign minister Sushma Swaraj, played down the issue of misuse of the India- Mauritius Double Taxation Avoidance Convention (DTAC).
India has been urging the island nation to jointly rework the DTAC to prevent round-tripping of tax evaded funds from the country. Foreign institutional investors that are Mauritius-based and are participating in India’s equity markets are taxed for short-term capital gains only in Mauritius, due to the DTAC, which means they hardly pay tax as that country’s tax rate is zero.
India has tried several ways to check this problem, the latest being introduction of a set of General Anti Avoidance Rules (GAAR). However, under investor pressure, India deferred its implementation from April 1 this year by two years and made its application prospectively to investments made on or after April 1, 2017.
Giving his views on GAAR, Lutchmeenaraidoo said: “People ask me if GAAR is a threat to me (Mauritius)… We have to put the question whether GAAR is good for India.” GAAR is a sort of “control” and the more one tends to control, the more it loses, he added.
GAAR conceptually would override provisions in tax treaties and once these rules are in force, the tax department could ask Mauritius-based entities investing in listed securities in India whether they are shell companies meant to avoid the 15% short-term capital gains tax in India or are genuine businesses that want to participate in the Indian economy.
Lutchmeenaraidoo, however, said the benefits to Mauritius (in terms of job creation) has been quite small after the DTAC was signed in 1983, when he was the finance minister. Mauritius is the largest source of FDI in India with inflows of $87.5 billion since April 2000, or 35% of the country’s total FDI inflows.
Emphasising that Mauritius has taken and would take more measures to cleanse the system, Lutchmeenaraidoo said the companies, investing in India and operating out of Mauritius would have to create more jobs and integrate with the island nation’s economy.
When asked if India has offered to insert a clause in the tax treaty to limit benefits as is the case with India-Singapore tax treaty, he remained non-committal. To qualify for the capital gains exemption in the “limitation of benefits” clause, the Singapore entity must have incurred an annual expenditure of 200,000 Singapore dollars on operations in Singapore in two years prior to the date the capital gains arise.
“We have submitted a draft protocol for the first time to the government..that will be used as the basis to finalise all discussions,” he said.
