India’s controversial double taxation avoidance agreement (DTAA) with Mauritius may be up for review soon. The finance ministry is in favour of reviewing such treaties that India has with over a 100 countries, in view of the country’s changing economic scenario. The treaties should be such that they are more suitable for Indian investments abroad as much as it is for incoming capital.
“We are working very hard on a model tax treaty as we have realised that today India not only imports capital but also invests abroad. So the very nature of DTAAs has to change,” Parthasarthy Shome, adviser to the finance minister said at a Taxand conference on Thursday. “We are now looking at what is to our benefit and advantage,” he added.
Shome said the government needed to protect not only revenue at a time when foreign capital came to India and the returns go abroad, but also when domestic companies invest abroad.
The government is also keen to encourage such firms investing abroad to send their profits back to the country through market mechanism, he said. Indian companies have invested over $ 20 billion abroad over the past one year.
Finance minister P Chidambaram in his budget speech this year too had taken up the issue of reviewing such tax treaties and had said the government is in favour of relooking at some provisions of the DTAA with Mauritius, as some Indian companies were involved in round-tripping of funds. In the recent past, the finance ministry has already done some such measures such as including a limitation of benefit clause in some such agreements and has also already tried to tighten the rules regarding origin of residence.