17 May 2016

The good and not-so-good in the Mauritius tax treaty

A little after Prime Minister Narendra Modi visited Mauritius in March 2015, India’s negotiators were at work on redrawing a historic agreement signed over 30 years ago between the two governments. That was the Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion, relating to taxing income and capital gains, which was signed in August 1982, and notified by the Indian government in December 1983, when Indira Gandhi was Prime Minister and Pranab Mukherjee her Finance Minister. The double taxation avoidance agreement, which provides for exemption from capital gains tax in Mauritius, has been at the centre of negotiations between the two countries for close to two decades — with concerns over the abuse of the treaty, and round-tripping of funds of Indians through Mauritius back to their home country in the form of foreign investment.

 The new arrangement, marked by a concessional capital gains regime for two years, kicks in in 2017, and a new agreement by 2019. That will be the true test of capital flows and investment and investor confidence.

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