While Mauritius became a part of the multilateral convention to implement tax treaty-related measures designed to prevent base erosion and profit sharing (MLI), it left out the bilateral tax agreement with India from its purview. This means the terms of agreement would not apply to transactions between residents of India and Mauritius. Mauritius included 23 bilateral treaties with different countries under the Organisation for Economic Co-operation and Development (OECD) agreement but left out India even though India had included Mauritius as a covered tax agreement (CTA) when it signed the multilateral treaty. Along with 68 other jurisdictions, India had entered into MLI last month. In an official statement, Mauritius said that the tax treaties which are not covered by the MLI, will be subject to a bilateral discussion with the respective treaty partners.
Jayesh Sanghvi, national leader-international tax services, EY India, said, “The India-Mauritius treaty is unlikely to get modified by the MLI unless there is a change in position of Mauritius in future. However, from India perspective, the PPT rule and various measures on dispute resolution are adopted being “minimum standards” of the BEPS mandate.”
Had the PPT rule been adopted by both countries, it could have an impact on grandfathering of investments made before March 2017 which are still protected from source taxation on capital gains under the India-Mauritius treaty as amended in 2016. Thus, Sanghvi said, one will have to wait and watch how the minimum standards (especially the PPT rule) will be achieved in the India-Mauritius treaty and its impact on existing / future holding structures.”
“Owing to this exclusion (of the India pact), the terms of MLI shall not apply to any transaction entered between tax residents of India and Mauritius,” Rakesh Nangia, managing partner, Nangia & Co said. Interestingly, India also amended its treaties with Cyprus and Singapore recently, but both these countries as well as India have included each other in the list of CTAs.
Explaining the reasons for not including India in the MLI signed by Mauritius, Nangia said that India-Mauritius treaty was recently re-negotiated and Mauritius may want to bilaterally agree the BEPS minimum standards that they want to incorporate in India-Mauritius tax treaty. It could also be that the treaty shopping done via Mauritius route pre-April 2017 might qualify as ‘treaty abuse’ under the terms of MLI.
He added that changes to the tax treaty bilaterally can be a time consuming processes as amendment in the erstwhile India-Mauritius Treaty took decades.