India and Mauritius amend Double Taxation Avoidance Agreement (DTAA)

Source-This post on India and Mauritius amend their Double Taxation Avoidance Agreement (DTAA) has been created based on the article “India, Mauritius revise tax treaty, aim to plug evasion” published in “The Indian Express” on 12 April 2024.

Why in the news?

Recently, India and Mauritius have amended their Double Taxation Avoidance Agreement (DTAA).

About amendment to Double Taxation Avoidance Agreement (DTAA)

1. India and Mauritius have amended their Double Taxation Avoidance Agreement (DTAA) to address treaty abuse related to tax evasion or avoidance. The revision aims to prevent misuse of the treaty for tax-related purposes.

2. This amendment applies to all incomes such as capital gains, dividends, fee for technical services.

3. The revised agreement implements the Principal Purpose Test (PPT), which denies treaty benefits such as reduced withholding taxes on interest, royalties, and dividends.

This applies when the main intention behind a transaction or arrangement was to secure these benefits.

4. The preamble of the treaty has also been amended to emphasize the intent to “eliminate double taxation” without creating opportunities for non-taxation or reduced taxation through tax evasion or tax avoidance. 

5. Impact of the amendment: Following this amendment, any cross-border structuring of investments into or out of India via Mauritius must consider the implications of the BEPS MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting).

This is particularly important when such structuring aims to utilize tax treaty benefits in either India or Mauritius.

6. This recent amendment does not clarify whether past investments will be exempted from a new regulation.

Status of Mauritius Investment in India

1. Until 2016, Mauritius was a preferred jurisdiction for investments in India due to the non-taxability of capital gains from selling shares in Indian companies.

2. The DTAA significantly influenced many foreign portfolio investors (FPIs) and entities to invest in India via Mauritius.

3. Mauritius is India’s fourth-largest source of FPI investments.

4. As of March 2024, FPIs from Mauritius totalled Rs 4.19 lakh crore, 6% of India’s total FPI investment of Rs 69.54 lakh crore. This is up from Rs 3.25 lakh crore at the end of March 2023, when the total was Rs 48.71 lakh crore.

Read more: Base erosion and profit shifting (BEPS) 

Syllabus- Indian Economy, International Relations