Prime Minister Narendra Modi on Thursday said that while India will work with Mauritius to prevent “abuse” of the tax avoidance treaty between the two nations, New Delhi will “do nothing” to harm the financial sector which is “critical” to the island nation.
Addressing a joint press conference after meeting his Mauritian counterpart Sir Anerood Jugnauth, Modi, who is on a two-day visit to Mauritius as a part of his three-nation tour including Seychelles and Sri Lanka, said that the two sides have agreed to continue the discussion on preventing abuse of the double taxation avoidance agreement.
“Over the past few years, we have discussed revision of our DTAA. This is based on our shared objective of preventing abuse of the convention, while enabling Mauritius to benefit fully from this arrangement. We have agreed to continue this discussion. However, I have assured the Prime Minister that we will do nothing to harm this critical sector of one of our strongest strategic partners in the world,” he said, according to an official statement. The DTAA between the two nations was signed in 1983 and has been allegedly used by the companies for evading taxes through round tripping. Here, an investor exploits the tax advantages offered by a country with which India has a DTAA, takes money out of India and finally brings it back disguised as foreign investment.
Under the DTAA, capital gains on sale of assets in India by companies registered in Mauritius can only be taxed in Mauritius. While short-term capital gains are taxed at 10 per cent in India, they are exempt in Mauritius. So, such companies escape paying taxes in both countries.
Earlier, India and Mauritius had agreed to review the operations of a joint working group set up in 2006 to strengthen the mechanism for exchange of information under the tax treaty, besides putting in place adequate safeguards to prevent misuse of the DTAA.
It has had 10 meetings till November last year. Mauritius is one of the top sources of FDI into India. In 2013-14, India attracted $4.8 billion from Mauritius.