Mauritius keen to review DTAA issue with India: Ramgoolam

Mauritius is keen to find a mutually satisfactory solution with India regarding the misuse of the Double Taxation Avoidance Agreement (DTAA), which has been seen as a means to avoid taxation in India. Mauritius Prime Minister Navincha-ndra Ramgoolam and Prime Minister Manmohan Singh have reviewed the status of negotiations and have directed officials to fast-forward talks in this regard.

The Mauritius PM has stated that Mauritius has a clean image in the international world and would like to maintain it. Hence a solution to the treaty would be in its interest too. He said that India and Mauritius’ double taxation avoidance convention had seen an unfair criticism, despite the fact that the legitimacy of the treaty had been upheld time and again in legal instances. He applauded the recent Supreme Court judgment on the Vodafone case in India.

The bone of contention between the two countries has been the two-decade-old bilateral agreement, the DTAA. Foreign entities have set up paper companies in Mauritius, claiming to be Mauritian residents. These companies, masquerading as Mauritian companies, have invested in India. And, taking advantage of the DTAA according to which capital gains tax is levied by the resident country, they avoid paying any taxes in India. They pay no taxes in Mauritius too as the island nation's financial regime is endowed with the key characteristics of a quasi tax haven.

Currently, over 40% of the total foreign direct investment (FDI) in India is made through Mauritius. Also, over 40% of foreign institutional investor (FII) money is understood to be routed through the island nation, much of which is poured by third-country investors. India has been demanding a change in the treaty and wants that capital gains tax should be imposed where the source originates and since the source is India, it should be allowed to impose taxes.

According to Indian officials, the country was losing more than $600 million every year in revenue because of the tax treaty, besides incurring the risk of militant groups using it to route money into India. Many Indian companies park illicit funds in Mauritius through shell companies as the standards for registering firms in the island are lax.

Earlier, Mauritius was not ready to revise the DTAA, fearing it would affect interests of its investors and hence the negotiations have been stalled for several years. A joint working group was constituted in 2006 to negotiate DTAA with Mauritius and its last meeting was held in 2008. India and Mauritius had one round of talks in December to revise the treaty. The changes in the treaty would change the way foreign investors structured their investments in India. Further, Ramgoolam’s visit is aimed at boosting Mauritius’ trade and technological cooperation with India.