Under the pressure from the Opposition and the civil society on the issue of black money, the government on June 20 said it has proposed re-negotiation by the August of three decade old taxation treaty with Mauritius, misused by many multinational companies and Indian companies to avoid tax or to route illegal funds. The finance secretary Sunil Mitra said, 'We have suggested dates in July and August to resume re-negotiations of Double Taxation Avoidance Agreement (DTAA). It will depend on their (Mauritius) convenience.'
The Mauritius government has also agreed to review tax treaty with India, as per the senior official of the Mauritius government, 'Mauritius is willing to re-open tax treaty with India and we would like to address India's concerns, including round-tripping of funds by Indian companies. The next meeting of joint-working group of India and Mauritius could be held soon, probably in Mauritius'. The last meeting was held in New Delhi last year, he added.
The Indian government has been pressing Mauritius for revive DTAA since 2006 to tighten registration norms for its companies as it is losing more than $600 million every year in revenue due to DTAA. The taxation treaty provide, capital gains arising in India from the sale of securities can only be taxed in Mauritius and since Mauritius does not tax capital gain, companies register themselves in island nation to invest in India to save tax.
It is understood that, most of the companies register them in countries like Mauritius and route their illegal money back to India to avoid taxes as DTAA is aimed at avoiding double taxation, the process is called round-tripping. It is believed that significant amount of India’s FDI and private equity into the stock market are round-tripped through Mauritius and other countries like Mauritius which have tax incentive policy. After the government’s announcement for review of DTAA, the Bombay Stock Exchange (BSE) fell as much as much as 3.1%.
As per the official data, since 2000, FDI flows into India from Mauritius sum to $55.2 billion around 42% of the total FDI, from April 2011, in present financial year India have received around $976 million.
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