Treaty shopping – Mauritius reaction.

By Vijay Kumar

Writing for the weekly Mauritius Times last week, India based freelancer Atul Dev commented,

For foreign investors willing to invest in India, it made sense to set up a subsidiary in Mauritius and route their investments through that country. By doing so, they would avoid paying capital gains tax all together -- India won't tax because the company is based in Mauritius and Mauritius had anyway exempted investors from capital gains tax.

It is now hoped that the Treaty, duly modified, will help encourage Indian investments in Mauritius, rather than the other way around. It is expected that Mauritius will agree to the changes as having signed similar DTATs with other ASEAN countries, it will be able to highlight its attraction as a tax haven and also plug gaps to stop both ‘round tripping’ and ‘treaty shopping’.

To this a reader reacted,

Treaty Shopping

In the landmark recent AzadiBachaoAndolan judgment, the Supreme Court of India has clearly pointed out that in the absence of a limitation of benefit clause (“LOB”) in the treaty, there can be no prohibition against treaty shopping. It also said that Indiahas in recent years been the beneficiary of significant foreign funds through the Mauritius route and that although economic reforms in India since 1991 permitted such capital transfers, the amount would have been much lower without the India-Mauritius tax treaty. Could there be better reference than the India Supreme Court?

Mauritius does business the smart way… that is why it is a hot favourite with everyone!