The proposed Preferential Trade Agreement (PTA) with Mauritius is unlikely to be concluded before New Delhi’s efforts to revisit the India-Mauritius Double Taxation Avoidance Convention (DTAC) bear fruit.
The government wants a review of the DTAC to prevent treaty abuse and strengthen the mechanism for exchange of information on tax matters between the two countries. ?The Department of Revenue is of the view that the finalisation of India-Mauritius CECPA (including any PTA) be formally kept on hold in line with Cabinet decision until the necessary modifications in the India ? Mauritius DTAC as proposed by it are accepted by the Mauritius side,? said a commerce ministry official.
The Mauritian side has been stressing on delinking the negotiations for finalisation of the PTA to amendment of certain clauses in the Comprehensive Economic Cooperation and Partnership Agreement (CECPA). Besides, the department has reiterated its view that the conclusion of PTA with Mauritius would involve extending a number of monetary concessions to the latter.
Till now, 10 rounds of negotiations on India-Mauritius CECPA have been held between the two sides. However, due to a divergence in perception between the revenue department and Mauritius on the definition of ?enterprise? and the treatment to ?Shell Companies?, it has not been possible to finalise the Chapters on Trade in Services and Trade in Investment.
India has put CECPA negotiations on hold since 2009 until Mauritius accepts the modifications proposed on DTAC. However, these issues have become significant in the wake of the meeting of the India-Mauritius Joint Commission to be held in New Delhi next month. The last Joint Commission Meeting was held in Port Louis in December 2007. At present, capital gains are fully exempt from taxation in Mauritius under its domestic laws. Thus, an investor routing his investment through Mauritius into India does not pay capital gains tax either in India or Mauritius.
Hence, Mauritius has become an attractive route for investment by the third country residents into India. New Delhi wants to impose capital gains tax on investments re-routed from the island nation. Article 13 on capital gains of the India-Mauritius DTAA provides for taxation of capital gains only in the country of residence of the investor.
India proposed to amend the treaty to provide for source-based taxation of such capital gains to retain its tax base. ?Mauritius wants Joint Working Group talks on DTAC and India?s assistance to Mauritius to emerge as an international financial centre as a composite package. The finance ministry is of the opinion that DTAC-related concerns are entirely different from Mauritius?s request for India?s assistance in financial services sector,? the official added.