Mauritius hopeful of addressing tax treaty issue with India

Asserting that Mauritius does not want to be a route for money laundering and round tripping of funds, its Prime Minister on Wednesday said a "mutually satisfactory" solution can be found about the alleged misuse of its Double Taxation Avoidance Agreement (DTAA) with India.

"We believe that we can find a mutually satisfactory solution and a win-win package that would address concern about alleged misuse (of DTAA)...," Mauritius Prime Minister Navinchandra Ramgoolam said at a meeting with Indian
business community organised by Ficci, CII and Assocham.

Yesterday, Ramgoolam and Prime Minister Manmohan Singh reviewed the status of negotiations on the revised DTAA during their talks here and directed officials to fast-forward talks in this regard.

Ramgoolam said that the DTAA has served both India and Mauritius well.

"India and Mauritius double taxation avoidance convention have seen, we feel, an unfair criticism, despite the fact that the legitimacy of the treaty has been upheld time and again in legal instances ... We also do not want to have round tripping, money laundering," he said.

"We have a clean image ... so it is important for us as well... I think the latest Supreme Court judgement in India on the Vodafone case said it very clearly... There were some concern relating to the alleged misuse of the treaty," he added.

Ramgoolam said that assurances have been given to them by India that nothing would be done to hurt economic interest of Mauritius.

It has been alleged that Mauritius is being used as a major base for evasion of taxes by Indian companies and the tax agencies have been finding it difficult to nail the culprit.

In this backdrop, India has been pressing for re-negotiation of its DTAA with Mauritius to plug the loopholes and revenue leakage by way of alleged round-tripping and tax evasion.

Nearly 42 per cent of FDI into India comes through Mauritius. Likewise about 40 per cent of the FII fund flow into the country is believed to be routed through the island nation. A large majority of them are third country investors, who are believed to use the DTAA for saving capital gains tax.

According the DTAA, capital gains from sale of shares by Mauritius residents in India would be liable to tax only in their country and vice-versa.