India and Mauritius have signed a protocol to amend the double taxation avoidance agreement (DTAA), which included a principal purpose test (PPT) to decide whether a foreign investor is eligible to claim treaty benefits. What is there in India, Mauritius Revise Tax Treaty? Check below in 10 pointers
- A new article has been added to the protocol named as “Article 27B Entitlement to Benefits” ; it was signed on March 7 and made available for the public now.
- The aim of this PPT is to limit tax avoidance by ensuring that treaty benefits are only granted for transactions done with a specific purpose.
- The amendment is also considered as a move by India to align with global efforts against treaty abuse, particularly under the BEPS Action 6 framework.
- The phrase “for the encouragement of mutual trade and investment” in the treaty’s preamble is omitted. It shows a shift in focus from promoting bilateral investment flows towards preventing tax evasion.
- It also makes India’s position strong in the world and the treaty matches international tax cooperation standards and also raises critical considerations for investors leveraging the India-Mauritius corridor.
- Until 2026 Mauritius was a preferred jurisdiction for engaging in investments in India due to the non-taxability of capital gains after the sale of shares in Indian companies.
- In 2016, India and Mauritius signed a revised tax agreement, after which India started taxing capital gains in India on transactions in shares done through the island nation.
- The tax on capital gains was arising from sale or transfer of shares of an Indian company acquired by a Mauritian tax resident and exempting investments made until March 31, 2017 from such taxation.
- After this amendment now any Indian inbound or outbound cross-border structuring of investment done through Mauritius should factor in the BEPS and MLI impact, especially if the structuring involves availing of tax treaty benefits (in India or Mauritius).
- After the treaty there may be a surge in litigation as investors from Mauritius will be required to substantiate the commercial rationale behind their transactions now, demonstrating that the primary objective was not to take treaty benefits.
(With Inputs From PTI)
Denial of responsibility! Todays Chronic is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – todayschronic.com. The content will be deleted within 24 hours.