Mauritius has conveyed its readiness to cooperate with India to plug in the loopholes in the Double Taxation Avoidance Agreement (DTAA), the tax treaty that exists between the two countries.
Speaking to reporters in New Delhi, Mauritius Foreign Affairs and International Trade Minister Arvin Boolell said that the island nation was already doing everything to stop abuse of the treaty and had exchanged information with India in 170 cases.
Mauritius has done everything to curb round-tripping. If there is room for improvement, we will constantly make room for improvement, of course, in respect and in compliance with the best international practices, said Boolell, according to a PTI report.
The DTAA enables capital gains arising out of investments and deals in India from Mauritius to be taxed in Mauritius and not India. Mauritius does not tax capital gains and any capital gain out of the investment made in India through Mauritius goes untaxed in both countries.
India and other countries use this treaty to avoid the tax net by routing their investments through Mauritius. Most of the investment that flows into India comes through Mauritius, and the Indian authorities concerned about the revenue loss have been forcing the government of Mauritius to revise the agreement.
India recently announced changes in its domestic taxation policy to pin the companies that evade tax using DTAA. The General Anti-Avoidance Rule (GAAR), introduced in the last budget in March 2012 and has been put on hold till April 1, 2013, will allow Indian authorities to declare any such deal that has been structured to avoid tax as illegal.
The Indian government had to face tough criticism from the investors for the provisions of retro taxing in the GAAR rules from the foreign investors. Though the government recently announced that it won't retro tax the investors, confusion about the rules still obstruct foreign fund flow to India.
The implementation of the GAAR with current provisions will adversely impact Mauritius as well, as it can offset the benefits that arise out of the DTAA treaty. The DTAA is crucial to Mauritius's economy as its financial sector is heavily dependent on the fund flow and related investments that arise out of the treaty.
Boolell said that both the countries would work toward solving the differences and that the domestic laws should never override the taxation treaties.
Changes in the treaty should not put Mauritius at a disadvantage vis-a-vis other countries with which India has similar agreements, WSJ.com reported, quoting Boolell.
Mauritius has reportedly even offered two of its islands to the country for investment and business purposes to cajole India into not revising the DTAA, a Times News Network report said.