Amendment to India-Mauritius Double Taxation Avoidance Agreement

• The amendment to the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius, incorporating a principal purpose test (PPT), indeed signifies a significant shift in tax policy aimed at curbing tax avoidance. This move raises valid concerns, especially regarding the potential impact on foreign portfolio investments routed through Mauritius and the implications for past investments.
• The principal purpose test is designed to ensure that treaty benefits are granted only to transactions with a genuine economic purpose, thereby preventing their misuse for tax avoidance purposes. This implies that Indian tax authorities will now have the authority to scrutinize investments beyond the Tax Residency Certificate (TRC) issued by Mauritius tax authorities.
• Furthermore, with the introduction of the PPT test, existing structures and investments from Mauritius may need to undergo rigorous examination to determine whether they pass the test. This could potentially lead to changes in the tax treatment of such investments in India.
• However, it's crucial to note that the amended protocol is yet to be ratified and notified under section 90 of the Income-tax Act, 1961. Until this happens, any concerns or queries regarding the amended agreement may be premature. The Income Tax Department has assured that once the protocol comes into force, any queries will be addressed as necessary.
• Overall, while the introduction of the PPT test reflects India's commitment to combatting tax avoidance, its implications for foreign investments via Mauritius warrant careful consideration by investors and stakeholders.

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Published date : 15 Apr 2024 04:28PM