March 2012, Asian Legal Business
India and Mauritius have long squabbled over their double tax avoidance treaty, which allows third country investors to claim tax exemption in India. With billions of dollars flowing through Mauritius every year, New Delhi wants the treaty amended and Port Louis may finally relent.
"We believe that we can find a mutually satisfactory solution and a win-win package that would address [India’s] concern about the alleged misuse of the Double Taxation Avoidance Agreement," said Mauritius Prime Minister Navinchandra Ramgoolam during his India visit in February this year. The contentious provision in the treaty has been the exemption to all Mauritius-based companies – even those with 100 percent foreign funding and no physical structure in Mauritius – from paying capital gains tax in India. Mauritius does not levy any tax on capital gains, and companies there are required to pay only 3 percent effective income tax, making it an attractive offshore financial centre for Indian investments.
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