Indications are that the Double Taxation Avoidance Treaty between India and Mauritius will stay despite pressure from the Indian tax authorities. In fact, the Treaty may be strengthened to withstand repeated scrutiny from the Indian tax authorities.
The Economic Times reports:
“The controversial double tax avoidance treaty between India and Mauritius is likely to survive despite pressure from the income-tax authorities. The pact may be reworked, but not scrapped, thanks to the lobbying by a high-level delegation headed by Mauritius Prime Minister Navinchandra Ramgoolam.
The pact, crucial for foreign institutional investors (FIIs) investing in India, has been facing an uncertain future since the revenue department in the finance ministry is opposed to loopholes that allow exploitation of the pact by intended beneficiaries. Several foreign companies, for example, have invested in India through what is known as the Mauritius route.
It is understood that Mr Ramgoolam discussed the issue with Prime Minister Manmohan Singh and pleaded strongly for status quo. The pact is crucial for Mauritius that is keen to develop itself into a leading financial centre of the world by offering attractively-low tax rates. Due to treaties like the one with India, a number of FIIs and foreign companies register special purpose vehicles (SPVs) in Mauritius for investment in other countries.”
Clearly, on this occasion, the pressure is mounting from the Mauritius side as it strives to ward off increasing competition from countries like Singapore and Cyprus that are providing tax-beneficial routes to foreign investors making investments into India.