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GAAR should not override tax avoidance treaties,Mauritius tells India

New Delhi, Jul 6: Amid  concerns over India's new tax proposals, Mauritius today said domestic legislations should not override the double taxation avoidance treaties between the two countries.“Once ‘Limitation of Benefit' clause is embedded in

PTI [ Updated: July 06, 2012 17:39 IST ]
gaar should not override tax avoidance treaties mauritius
gaar should not override tax avoidance treaties mauritius tells india

New Delhi, Jul 6: Amid  concerns over India's new tax proposals, Mauritius today said domestic legislations should not override the double taxation avoidance treaties between the two countries.




“Once ‘Limitation of Benefit' clause is embedded in the taxation treaties, we expect it to prevail and no domestic legislation should over-ride the treaty,” Mauritius Minister of Foreign Affairs, Regional Integration and International Trade Arvin Boolell said here.

India is looking to implement new rules to tackle the menace of tax evasion.

A large quantum of foreign investments in India are routed through Mauritius to escape the tax net, which has prompted the government to bring out the General Anti-Avoidance Rules (GAAR) to prevent abuse of the tax treaty.  

Boolell said Mauritius is willing to resolve all issues related to double taxation avoidance agreement treaty (DTAA) with India.

The joint working group of the two country's would meet from August 22-24 to iron out differences over the tax treaty, he said at a press conference here.

Boolell said the zero capital gains tax in Mauritius would continue to be there under the treaty. “Article 13 (related to capital gains tax) is sacrosanct,” he noted.

Article 13 refers to the clause in DTAA, whereby, a company can avail the benefits of the treaty and pay capital gains tax only in Mauritius.

However, companies are misusing this clause to avoid taxes since Mauritius does not charge capital gains tax.

Noting that the two countries have made tremendous progress since 2006 regarding their DTAA, he said everything has been done to curb round-tripping.

Round-tripping generally refers to re-routing of money by companies to avoid taxes.

Meanwhile, Mauritius today said it has exchanged information related to tax in over 170 cases with India over three years, and the two countries have made big progress on the double taxation avoidance treaty since 2006.

Some of the information exchanged was even outside the Double Taxation Avoidance Agreement (DTAA) the two countries have with each other, Arvin Boolell told reporters here.

He added, however, that domestic legislations should not over-ride the treaty between the two countries.

“Domestic legislations should not over-ride the taxation treaty between India and Mauritius,” Boolell said.  

India-Mauritius tax treaty provides that capital gains arising in India from investments in the country from the island nation can only be taxed in Mauritius.

As Mauritius does not tax capital gains, investments that are routed through the country escape this levy.

A large quantum of foreign investments in India are routed through Mauritius to escape the tax net, which has prompted the government to bring out the General Anti-Avoidance Rules (GAAR) to prevent abuse of the tax treaty.
 
“Mauritius has done everything to curb round-tripping,” Boolell said.

During talks with External Affairs Minister S M Krishna yesterday, Boolell had also underlined the importance of Mauritius as a springboard for investments by Indian entrepreneurs to Africa.

Amid concerns about Mauritius being used as a route for evasion of taxes, India yesterday got an assurance from the country that it would have a re-look over various aspects related to tax treaties, like DTAA.

“If there is room for improvement, we will constantly make room for improvement, of course, in respect and in compliance with the best international practices,” Boolell had said, when asked by the media about India's demands for reworking DTAA.
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