Visiting Mauritius PM Navin Ramgoolam on Tuesday offered support to India’s efforts to curb unaccounted wealth of some Indians returning in the guise of legitimate investment, by ensuring that investing entities in Mauritius are not fronts for tax evaders.
?We gave additional proposals to reassure India that we will not allow anyone to abuse or misuse provisions of the treaty (Double Tax Avoidance Convention signed between the two countries in 1983),? Ramgoolam said at a media briefing.
The India-Mauritius DTAC, which allows foreign portfolio investors from Mauritius to avoid short-term capital gains tax in India (15%) on sale of listed securities, has been a major headache for India as treaty has been suspected of being abused by those trying to bring back tax evaded money back to India through shell companies incorporated in Mauritius.
This has forced India to recently introduce General Anti-Avoidance Rules that would lift the corporate veil on such entities from April 1, 2016 in the case of investments made after August 30,2010. India had enacted GAAR with significant relaxations to make it acceptable to investors by introducing a Rs three crore of tax benefit the requirement for applying the rigorous anti-avoidance rules.
?Any Indian company investing in Mauritius has to demonstrate business purpose, commercial value and economic substance,? said Ramgoolam.
That precisely is the spirit of India’s anti?avoidance rules meant to deny treaty benefit to entities that exist only in paper but not in the real world.
Mauritius also agreed for automatic exchange of tax information in place of the current system of exchanging information on request. He said the office of both the Prime Ministers would set up special cells for effective execution of the scheme.
To a question from FE on whether Mauritius would expect India not to invoke GAAR on investments routed through that country, Ramgooalam said, ?I hope the new scheme would allay India’s fears.?
