INDO MAURITIUS DTAA PDF

Public Sector Banks Recapitalisation: A much needed and timely impetus The protocol gives India the right to tax capital gains on transfer of Indian shares acquired on or after 1 April Photo: Shutterstock Recent news of India and Mauritius signing a Protocol to amend their 33 year old tax treaty caused seismic changes in the tax world. Though not completely unanticipated, the change is significant for foreign investors to go back to the drawing board and reassess their structures. The treaty provides for a capital gains tax exemption to a Mauritius resident on transfer of Indian securities. As India opened the doors of its economy to foreign investment in , Mauritius became a favourite jurisdiction for channelling investments into India. Soon enough, the Indian tax officers did not appreciate the prospect of perceived letter box companies in Mauritius claiming the tax exemptions and sent tax bills to them, alleging misuse of treaty. While the golden tap kept flowing, apprehensions on round tripping of money by Indians via Mauritius continued even as successive Governments made efforts to renegotiate the treaty.

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Public Sector Banks Recapitalisation: A much needed and timely impetus The protocol gives India the right to tax capital gains on transfer of Indian shares acquired on or after 1 April Photo: Shutterstock Recent news of India and Mauritius signing a Protocol to amend their 33 year old tax treaty caused seismic changes in the tax world.

Though not completely unanticipated, the change is significant for foreign investors to go back to the drawing board and reassess their structures. The treaty provides for a capital gains tax exemption to a Mauritius resident on transfer of Indian securities. As India opened the doors of its economy to foreign investment in , Mauritius became a favourite jurisdiction for channelling investments into India.

Soon enough, the Indian tax officers did not appreciate the prospect of perceived letter box companies in Mauritius claiming the tax exemptions and sent tax bills to them, alleging misuse of treaty. While the golden tap kept flowing, apprehensions on round tripping of money by Indians via Mauritius continued even as successive Governments made efforts to renegotiate the treaty.

Timing of the change - Why now? The present Government came to power promising action on black money stashed abroad. Globally too there was widespread resentment against companies failing to pay their fair share of taxes. Politically, this would be viewed as an achievement for the Government.

What does the Protocol say? The protocol gives India the right to tax capital gains on transfer of Indian shares acquired on or after 1 April Existing investments will be grandfathered. After 31 March , tax will be charged at full domestic tax rates. Capital gains on derivatives and fixed income securities will continue to be exempt.

What is impact on foreign investors? A significant collateral damage of the Protocol is its impact on the India-Singapore treaty; capital gains tax exemption under the India-Singapore tax treaty is co-terminus with the capital gains tax exemption under the Mauritius treaty. Capital gains arising to a Singapore tax resident from transfer of Indian shares will therefore become taxable in India with from 1 April For P-Note investors, this will mean an increase in cost of taking exposure to Indian shares For P-Note issuers, this will translate into operational challenges of computing taxes and recovery from clients.

Mauritius will continue to remain relevant for fixed income business with tax on interest being the lowest at 7. Shares acquired on or before 31 March have been grandfathered which would mean a continuance of the Mauritius structures for few more years; we may also see a possible acceleration of transactions by 31 March.

Concluding remarks The signing of the Protocol is certainly a decisive move by the Government of India which puts at rest more than a decade long controversy around the Mauritius treaty. The Government also deserves to be applauded for giving sufficient notice of close to a year before the change takes effect as well as providing protection to existing investments.

Significantly, this development also blunts the impact of the much condemned GAAR, which would have conflicted with the capital gains exemptions under the Mauritius and Singapore treaties. One will need to be cautious of the impact of this development on foreign flows, at least in the near term. Most comparable jurisdictions do not tax capital gains on portfolio investments and India is unique to that extent.

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DTAA between India and Mauritius

Notwithstanding the provisions of paragraphs 1 and 2 of this article, a person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State [other than an agent of an independent status to whom the provisions of paragraph 5 apply] shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if : i he has and habitually exercises in that first-mentioned State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; or ii he habitually maintains in that first-mentioned State a stock of goods or merchandise belonging to the enterprise from which he regularly fulfils orders on behalf of the enterprise. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted exclusively or almost exclusively on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State whether through a permanent establishment or otherwise shall not, of itself, constitute either company a permanent establishment of the other. Sub-paragraph j inserted by Notification No. Income from immovable property may be taxed in the Contracting State in which such property is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, oil-wells, quarries and other places of extraction of natural resources, ships, boats and aircraft shall not be regarded as immovable property.

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