Concerned that the Mauritius route is misused to invest in India, both the countries are likely to revive discussion soon to amend the double taxation avoidance agreement (DTAA). India wants that any company based in Mauritius and operating in India should pay tax on the capital gains they make here.
?We want that the capital gains tax should be source-based. As gains are made by these companies here, they should pay tax,? Central Board of Direct Taxes (CBDT) chairman Prakash Chandra told reporters.
The DTAA signed between the two countries in 1983 provides that capital gains arising in India by sale of securities can only be taxed in Mauritius. However, since Mauritius does not tax capital gains, it leads to zero taxation.?As per the DTAA, the gains are taxed at the resident and that is why company go there,? Chandra said. He further said Mauritius are willing to have a fresh look on the existing treaty.
India suspects that Mauritius route is misused by investors from third countries and also by many Indians firms to reinvest in India. Recently, India and Mauritius agreed to review the operations of the Joint Working Group (JWG), which was set up in 2006 to strengthen the mechanism for exchange of information under the India-Mauritius tax treaty, besides putting in place adequate safeguards to prevent misuse of the DTAA between them.
However, on the contrary Mauritius had recently said there is no need to renegotiate its tax treaty with India for tracking black money as the existing provisions provide for exchange of banking and other tax-related information between the two countries to deal with the menace. In the last three years, Mauritius had received around 64 requests for bank information from India and the requested information was duly submitted.
Indian agencies are said to have increased their vigilance after they noticed a significant surge in venture capital funds coming into the country from Mauritius in sectors like telecom and real estate.
Mauritius accounted for about 42% or $54.22 billion of the total $130 billion worth of foreign direct investment in the country since April 2000. Fund flow from tax havens have been under close scrutiny in recent times for money laundering.
India has negotiated Tax Information Exchange Agreements (TIEAs) with 14 countries. Besides, 18 existing DTAA are being revised for sharing banking and tax-related information and18 new negotiation are being carried out, Chandra said.
The Indian government is facing intense pressure from the civil society activists, Opposition parties and also from the Supreme Court over the issue of black money stashed away by some Indians in tax havens like Switzerland and Mauritius.
Chandra said that India would also be able to exchange banking information with Switzerland with effect from April 1, 2011. However, past information would not be possible under the revised treaty with the European country.