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NEW DELHI: India and Mauritius have signed a protocol to amend the double taxation avoidance settlement (DTAA), which included a principal goal take a look at (PPT) to resolve whether or not a overseas investor is eligible to assert treaty advantages.
The introduction of PPT may end in extra scrutiny of investments, with specialists suggesting that authorities will take a look at if acquiring tax advantages beneath the treaty was one of many foremost targets of routing investments by way of the African nation.
“The introduction of the PPT aims to curtail tax avoidance by ensuring that treaty benefits are only granted for transactions with a bona fide purpose. However, application of PPT to grandfathered investments remains ambiguous, highlighting the need for explicit guidance from the CBDT. Furthermore, omission of the phrase “for encouragement of mutual commerce and funding” in the treaty’s preamble suggests a shift in focus towards preventing tax evasion over promoting bilateral investment flows,” stated Rakesh Nangia, chairman of Nangia Andersen India.
In Feb, the Mauritius govt had agreed to amend the tax treaty with India to adjust to OECD norms and amendments had been signed final week.
In previous there have been a number of “post box” entities, which operated out of Mauritius solely to take treaty advantages. Now, such corporations are prone to face the take a look at because the preamble itself makes it clear that as an alternative of “encouragement of mutual trade and investment”, now the thought is to there are not any “opportunities for non-taxation or reduced taxation or avoidance (including through treaty shopping arrangements aimed at obtaining reliefs in this Convention for the indirect benefit of residents of third jurisdictions”.
The transfer is predicted to make market gamers nervous as massive flows are routed by funds by way of Mauritius and everyone seems to be awaiting additional cues from govt, which has to this point remained silent. Due to tax advantages supplied by DTAA, overseas funding, each direct and institutional or portfolio, have been routed by Mauritius. With modification of the treaty in 2016, when capital features advantages had been taken away, Mauritius, which has been the most important supply of FDI, has now slipped to fourth spot.
The introduction of PPT may end in extra scrutiny of investments, with specialists suggesting that authorities will take a look at if acquiring tax advantages beneath the treaty was one of many foremost targets of routing investments by way of the African nation.
“The introduction of the PPT aims to curtail tax avoidance by ensuring that treaty benefits are only granted for transactions with a bona fide purpose. However, application of PPT to grandfathered investments remains ambiguous, highlighting the need for explicit guidance from the CBDT. Furthermore, omission of the phrase “for encouragement of mutual commerce and funding” in the treaty’s preamble suggests a shift in focus towards preventing tax evasion over promoting bilateral investment flows,” stated Rakesh Nangia, chairman of Nangia Andersen India.
In Feb, the Mauritius govt had agreed to amend the tax treaty with India to adjust to OECD norms and amendments had been signed final week.
In previous there have been a number of “post box” entities, which operated out of Mauritius solely to take treaty advantages. Now, such corporations are prone to face the take a look at because the preamble itself makes it clear that as an alternative of “encouragement of mutual trade and investment”, now the thought is to there are not any “opportunities for non-taxation or reduced taxation or avoidance (including through treaty shopping arrangements aimed at obtaining reliefs in this Convention for the indirect benefit of residents of third jurisdictions”.
The transfer is predicted to make market gamers nervous as massive flows are routed by funds by way of Mauritius and everyone seems to be awaiting additional cues from govt, which has to this point remained silent. Due to tax advantages supplied by DTAA, overseas funding, each direct and institutional or portfolio, have been routed by Mauritius. With modification of the treaty in 2016, when capital features advantages had been taken away, Mauritius, which has been the most important supply of FDI, has now slipped to fourth spot.
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