The Mauritius-India Tax Treaty
23 December 2013
Posted by: Author: Keith Martin
Author: Keith Martin (Chadbourne & Parke LLP)
The Mauritius-India tax treaty is expected to be amended before April 2016 to make it harder for companies making inbound investments into India to take advantage of the treaty.
A large share of US companies investing in India set up Mauritius holding companies to hold the investments. Such a holding company is considered a Mauritius tax resident. When shares in the Indian project company are sold, there is no capital gains tax because of the treaty. Singapore has a similar exemption from capital gains taxes in its treaty with India, but it is harder to qualify as a tax resident in Singapore due to a "limitation of benefits” clause in its treaty. A Singapore-like limitation of benefits clause needs to be added to the Mauritius treaty before a general anti-tax avoidance rule goes into effect in India that would override the treaty protections for companies using bare holding companies in Mauritius to take advantage of the treaty.
According to an August 2013 report by the India Department of Industrial Policy, 38% of foreign direct investment into India comes through Mauritius. Singapore accounts for 11%.
A third of outbound investment from Mauritius went into India in 2010, but it fell to 16% by 2012. Today, 51% of outbound investment from Mauritius is into Africa.
Mauritius is having to defend itself from charges by the UK charity ActionAid that it is complicit in draining African countries of needed tax revenue after Deloitte handed out a document entitled "Investing in Africa through Mauritius” at a conference in China in June. The document explained how investing in Mozambique through Mauritius can reduce withholding taxes by 60% and eliminate capital gains taxes.
This article first appeared in lexology.com.