Citizen Media Watch

september 17th, 2021

Double Tax Avoidance Agreement India Mauritius

Posted by lotta

India has comprehensive double taxation treaties (DBA) with 88 countries. [4] This means that there are agreed tax rates and jurisdictions for certain types of income that differ in one country for a tax established in another country. Under India`s Income Tax Act 1961, there are two provisions, Section 90 and Section 91, which provide taxpayers with a special facility to protect them from double taxation. Section 90 applies to taxpayers who have paid tax to a country with which India has signed a DBAA, while Section 91 provides relief to taxpayers who have paid taxes to a country with which India has not signed a DBAA. Thus, India relieves both types of taxpayers. After India renegotiated its double taxation treaty with Mauritius in 2016, there have been some positive developments. First, a brief summary: the essence of the 2016 renegotiation was to close the important loophole that made Mauritius a preferred investment route to India. The loophole was the ”residence-based taxation on capital gains resulting from the sale of shares”. In the absence of jargon, if a company established in Mauritius invests in shares of a company established in India and then sold those shares and made a profit, it would have to pay capital gains tax in Mauritius. In practice, Mauritius does not collect capital gains tax! This gap was filled in 2016 and now there would be source-based taxation on capital gains. This means that if companies established in Mauritius sell shares in a company established in India, capital gains tax would be levied by India. Naomi Fowler ■ India and the renegotiation of its double taxation treaty with Mauritius: an update In the current situation where economic instability reigns in the market, this is a serious setback for investors, where each country is trying to create the friendly investment market, and decisions such as AAR will hold the country`s investors back. First, the impact of such an injunction is expected to be colossal.

Investors were protected by the general rule of grandfathering, i.e. investments before 1 April 2017 will not be taxable, but following the amendment of the rules of the agreement between the Government of the Republic of India and the Government of Mauritius to avoid double taxation, exit plans have been strengthened2. The impact would also manifest itself in the dispute, given that there is great uncertainty about the departures of private equity firms and the DBAA signed by India with Mauritius. This is not the first time that AAR has decided not to oppose the normal course of the contract. On a few occasions, it has been found that investors and companies are pouring their money through Mauritius and Singapore to take advantage of DTAA`s advantage between India and Mauritius in the first place. Going back to the main story, Mauritius` huge capital transfer definitively proves that the tax exemptions offered and the ease of setting up shell companies (the two key elements of the double taxation agreement with India, amended in 2016) were the main reasons why it was a capital exporter. After the absence of these advantages, the advantages of the Mauricie have diminished considerably. India`s efforts to renegotiate the treaty to close at least one tax evasion route backed by political will at the highest level appears to have borne fruit. The double taxation agreement between India and Mauritius (hereinafter referred to as `DBAA`) provides for a possible tax exemption for foreign investors, under which Mauritius is considered one of the preferred routes for investments in India, which exempts capital gains tax resulting from the sale of shares in an Indian company.

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