The recent introduction of angel tax norms in India has reportedly caused a stir across borders, with Mauritius expressing “frustration” over its exclusion from the list of countries where investors will not be liable for Angel Tax.
The Mauritian government reportedly intends to seek clarifications from Indian authorities regarding this decision, Mahen Seeruttun, the Minister of Financial Services, has been cited as saying.
According to India’s IiveMint news platform, Seeruttun said that Mauritius is “among the few countries globally that have fully complied with all 40 Financial Action Task Force (FATF) mandates related to anti-money laundering and the financing of terrorism”.
Furthermore, the island has implemented strict “substance” requirements for global financial services firms operating from Mauritius, he was cited as adding.
These requirements necessitate firms establishing a presence in the country and meeting specific criteria, such as having a local office and employing local staff.
The ramifications of this exclusion are far-reaching, striking at the heart of Mauritius’ position as a gateway for investments flowing into unlisted Indian companies.
The new rules could lead to investors exploring alternative destinations or companies opting to directly invest in India to avoid Angel Tax.
The controversy centres around a notification issued by India’s Central Board of Direct Taxes (CBDT) in May, which exempted investors from 21 foreign jurisdictions from the provisions of Angel Tax. The tax is applicable to capital raised by startups from non-resident investors above the fair market value, with a charge of 30.9% on net investments over that value.
Although the aim of the norms was to combat money laundering, startups have criticised them, arguing that the rules discourage investments. They contend that selling shares at a higher premium is a common practice globally. While various changes were introduced, such as multiple valuation methodologies and safe harbour clauses, Mauritius appears to have been adversely affected by the new norms.
Countries like Australia, France, Germany, and the United States have been granted exemption, while Mauritius, Singapore, and the Netherlands have been left out.
“So far, we do not understand the rationale around the choice of these 21 countries, but we are seeking clarification from the concerned authorities,” Seeruttun said.
Exclusion of Mauritius from the list may impact the prospects of Mauritius as a source for investments into unlisted Indian companies since funds would prefer coming directly into India to avoid angel taxes, experts were quoted as saying.
It is feared that the situation could potentially lead to a diplomatic standoff as Mauritius has much at stake. It remains to be seen whether Indian authorities will consider providing concessions to their ally in the Indian Ocean or maintain their position during future discussions.
Source: LiveMint
