<article>India redrew its tax agreement with Mauritius to prevent investors using the island nation as a shelter to avoid taxes.</article>

India redrew its tax agreement with Mauritius to prevent investors using the island nation as a shelter to avoid taxes.
The government will tax capital gains arising in Mauritius on shares of an Indian company bought after March 31, 2017, the Finance Ministry said in a statement. The levy will be at half the prevailing rate, currently at 15 percent, during a two-year transition period. The full rate will kick in from April 1, 2019.
India and Mauritius have been negotiating aspects of their three-decade-old pact treaty since 2006 to check misuse by some investors who use a double-taxation avoidance pact between the two nations to escape taxes. Indian stocks slid on concern the changes would impact holders of participatory notes held abroad. Flows through the notes, which allow foreigners not registered in India to invest in domestic securities, were 10 percent of the 22.25 trillion rupees ($333 billion) held in equities, bonds and derivatives as on March 31, data from the regulator show.
“Holders of participatory notes are the most at risk,” Andrew Holland, chief executive officer of <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=ambit">Ambit Investment Advisors Pvt</a>. in Mumbai, said in an interview with Bloomberg TV India on Wednesday. “There won’t be a major impact on the rest of the market right at this moment. Investors need clarity on how this is going to work since the move was not expected.”
<h3 style="text-align: justify;">Singapore Treaty</h3>
More than a <a style="color: #000080;" title="Mauritius Role in India’s FDI" href="http://dipp.nic.in/English/Publications/FDI_Statistics/2015/FDI_FactSheet_OctoberNovemberDecember2015.pdf" target="_blank" data-tracker-action="click" data-tracker-category="nav" data-tracker-label="inline_link.01">third </a>of the $278 billion India has received in foreign direct investments in the past 15 years has come via Mauritius, data from the Trade Ministry show. The new treaty may trigger a similar amendment in India’s tax treaty with Singapore, Revenue Secretary Hasmukh Adhia said in a twitter message. Mauritius and Singapore accounted for $17 billion of the total $29.4 billion India received in <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=fdi">FDI </a>between April and December 2015, data show. The inflows won’t slow, according to Dalton Capital Advisors India Pvt.
“They’ve given investors sufficient time to take appropriate steps, which is good,” U.R. Bhat, managing director at the local unit of U.K.-based <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=dalton">Dalton Strategic Partnership LLP</a>, said by phone. “Also, the tax in the transition period is half the applicable rate, which isn’t terrible. This is unlikely to scare investors.”
The S&amp;P BSE Sensex fell 0.3 percent at 10:30 a.m., after paring losses of as much as 1.4 percent.
<h3 style="text-align: justify;">Round Tripping</h3>
India has been pushing to revise the double taxation avoidance treaty it signed with Mauritius in 1983. The pact sought to eliminate double taxation of income and capital gains to encourage mutual trade and investment. Yet, as the tropical island emerged as the biggest source of foreign investment in India, suspicion grew that the some of those inflows weren’t originally from Mauritius, but by Indian entities who routed their money via the tax shelter to escape levies back home, a maneuver called round tripping.
Reworking the treaty “would push up tax costs for investors but there is certainty and clarity,” Mukesh Butani, a New Delhi-based managing partner at BMR Legal, said in an email. “India in the medium-to-long term will continue to attract investments and a stable environment will auger well for the rupee, which would make tax costs look insignificant.”
Also read:
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/india-70-of-p-notes-odis-come-via-singapore-mauritius-35780/">India: 70% of P-Notes come via Singapore, Mauritius</a>
<a style="color: #ff0000;" href="http://www.dealstreetasia.com/stories/singapore-gic-to-buy-majority-stake-in-greenko-mauritius-for-251m-16347/">Singapore: GIC to acquire Greenko Mauritius for $251m</a>
Bloomberg

India redrew its tax agreement with Mauritius to prevent investors using the island nation as a shelter to avoid taxes.

India acts to stop investors using Mauritius as tax shelter

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India acts to stop investors using Mauritius as tax shelter

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