The Cabinet’s agreement on the 23rd of February to the signing of a protocol amending the Convention on the prevention of double taxation between the government of Mauritius and its Indian counterpart has stirred discussions among tax experts.
With the objective being to comply with the Organization for Economic Cooperation and Development (OECD) minimum standards on base erosion and profit shifting, the Mauritian government has opted to revise its Double Taxation Avoidance Agreement (DTAA) with India.
This move has implications for multinational corporations with entities in both India and Mauritius, as they may encounter more stringent treaty rules under the implementation of the BEPS MLI.
According to Fazeel Soyfoo, Partner International Tax at Andersen, the Indian tax authority will have an additional tool in the form of the ‘principle purpose test’ to tackle tax evasion. However, concerns have been raised in India that the amendment may pose challenges for foreign investments in the country.
Experts suggest that the modification will impact anti-abuse rules, limitation of benefits, principal purpose test, and the inclusion of arbitration in the mutual agreement procedure.
While Ryan Allas, International Tax Leader at Rogers Capital, believes that this amendment could be advantageous for both Mauritius and India, it also signifies a shift towards encouraging substance over mere tax planning strategies.
The minimum standards for bilateral tax conventions are aimed at combating tax evasion by incorporating clear statements in the titles and preambles. This is aligned with the clear objectives of the OECD’s BEPS standards.
The signing of the multilateral Convention in 2017 was a significant step towards preventing base erosion and profit shifting. However, it applies only to Covered Tax Agreements under the MLI framework.
In light of these developments, the revision to the double taxation convention with India marks a significant step towards dispelling the notion that Mauritius is a tax haven.
The implications of this move are likely to impact financial transactions between the two countries and will be closely monitored by the tax community in both jurisdictions.
Source: Defi Media
