Mauritius digs its heels on tax treaty with India

Mauritius is staunchly opposed to any major change in the existing double taxation avoidance agreement (DTAA) with India as the economy of the tiny island nation is critically dependent on the financial services sector, which contributes as much as 80 per cent to its gross domestic product.

Mauritian minister of foreign affairs and international trade Arvin Boolell told MAIL TODAY that "you cannot overnight make a proposal which does not converge in substance" with the existing treaty between the two countries. The certainty and stability of the existing treaty should not be overridden by any new clauses.

At the heart of the matter is Article 13 of DTAA, which stipulates that capital gains earned in India by a Mauritian company are not taxable in India while the island levies no capital gains tax. This means the transaction is taxed neither here nor in Mauritius.

Many investors have been misusing this provision to evade taxes and India is keen to plug the leak. There is concern that some companies are using Mauritius as a mere post box address to evade taxes.

Mauritius is worried that if this provision is changed, money would stop flowing into its banking sector and cripple the economy.

Boolell said that the treaty must be responsive to needs of both the countries. "We are willing to discuss issues but there should be gains for Muaritius and gains for India's economy to grow."

Boolell struck an emotional note to emphasise that India is dealing with its own diaspora in Mauritius, who have a deep sentimental bond with the land of their forefathers. "We are willing to give India premium space not only in heart and soul but also when it comes to facilitating investment flow."

The minister was referring to the fact that 40 per cent of India's FDI comes through the Mauritian route. Mauritius is "willing to walk the extra mile"to provide information to India in cases where it is required by tax authorities".

He said: "Our finance minister is looking forward to travel to India to strengthen exchange of information to sign the Tax Information Exchange Agreement. The text has been finalised and it is ready to be signed." Boolell admitted that some concerns over "alleged" black money needs to addressed.

"Whatever loopholes are to be plugged... we are willing to plug them. We are a jurisdiction which has put in place all necessary precautions, all necessary checks and balances."

In association with Mail Today