India and Mauritius appear to have hit rough weather
over revising the tax treaty as the island nation wants New Delhi to soften its stand on the General Anti-Avoidance Rules (GAAR.)
Arvin Boolell, foreign and trade minister, Mauritius, said on Friday that domestic legislations should not override the Double Taxation Avoidance Agreement (DTAA) between India and the island nation. Boolell, however, assured India that Mauritius is willing to resolve all issues related to DTAA. "The joint working group of the two countries would meet from August 22-24 to iron out differences over the tax treaty," he said at a press conference here.
Boolell's comment comes amid concerns as the government is considering to implement GAAR to check tax evasion through countries such as Mauritius. India is also looking to amend the taxation treaty with Mauritius, which was signed in 1983.
But Boolell insisted that zero capital gains tax in Mauritius would continue to be there under the treaty. Article 13 (related to capital gains tax) is sacrosanct, he noted. Article 13 refers to the clause in DTAA, whereby, a firm can avail the benefits of the treaty and pay capital gains tax only in Mauritius. However, companies are misusing this clause to avoid taxes since Mauritius does not levy capital gains tax.
Most foreign investment coming into India is routed through Mauritius to escape the tax net. This has prompted the government to consider introducing GAAR to prevent abuse of the tax treaty. Mauritius says it is willing to offer the Limitation of Benefit Clause, which will impose some restrictions like minimum capital investment required by the company in the island nation before it can get registered.
Singapore, for instance, has such restrictions and does not allow merely companies with a post box to operate like Mauritius does. Boolell said, "Once the Limitation of Benefit clause is embedded in the taxation treaties, we expect it to prevail and no domestic legislation should override the treaty."
India is looking to implement new rules to tackle the menace of tax evasion.
Courtesy: Mail Today