The Indo Mauritian Double Tax Treaty Accounting Essay

Double revenue enhancement turning away understanding pact was signed between Mauritius and India non merely to avoid dual revenue enhancement but most significantly to advance investing and trade chances. The pact can be accessed from MRA web site at hypertext transfer protocol: //

The pact was signed in 1983, even though the planetary concern sector was non known at that clip, it was merely in 1992, that the sector began to take off. In 1992, Mauritius became the route to India every bit shortly as it embarked on a non-banking offshore government and together with the happenstance release of the Indian economic system. Thereupon, Mauritius has been continuously considered as the preferable platform by investors to put in India which has been advantageous in footings of FDI for both states. Harmonizing to informations from ( DIPP ) , India received for the last 10 old ages 44 % of FDI that came through Mauritius.

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However, the pact with India has been capable to many contentions from Indian revenue enhancement governments since 1994. Below are some lineations of chief instances which depict the contentions.

3.2 NATWEST Case: 220 ITR 337 ( Advance Ruling No P.9 of 1995 )

In this instance, an English bank was utilizing Mauritius as an investing path to India, by puting two subordinates in Mauritius. The application was in regard to the revenue enhancement liabilities of capital additions and dividend income under the Indo-Mauritian dual revenue enhancement pact.

The Authority for Advance Ruling ( AAR ) rejected the application since it was believed that the chief intent for integrating the subordinates by parent company was decrease of revenue enhancement. The dealing was intended to be leading facie for the turning away of revenue enhancement.

However, every bit far as capital addition is concerned, Article 13 ( 4 ) of the Indo-Mauritian dual revenue enhancement pact was applied by the AAR, where it emphasized that this addition is nonexempt in Mauritius since there has been no reference of good proprietor. As a consequence, the dividend income was nonexempt in India and capital addition was non.

3.3 AIG ‘s Case: 224 ITR 473 ( Advance Ruling No. P-10 of 1996 )

The instance concerned the puting up of a fund in Mauritius and to route all investings to India. At start, Indian revenue enhancement governments bind the instance based upon the NatWest opinion logical thinking by supplying that the purpose behind such incorporation was to avoid revenue enhancement.

Conversely, AAR argued that puting of such fund in Mauritius was non merely to avoid revenue enhancement in contrast to the NatWest Case, but besides for commercial and cost advantages. Since AIG gave commercial justification for routing its investings in India via Mauritius, the AAR concluded that the applier was to the full entitled to the benefits from the pact.

3.4 In Re: XYZ/ABC, Equity fund ( 2001 )

In this opinion, the applicant dealt with the buying and merchandising of derived functions instrument. Harmonizing to the AAR income earned on this dealing would be regarded as concern net incomes and finally non termed as capital additions. Furthermore, it was held that the applier has no PE in India, connoting that concern net incomes income will be taxed in Mauritius and non in India. Additionally, the AAR concluded that the TRC issued by Mauritanian revenue enhancement governments was plenty in representing the occupant position of the applier. Hence, he was qualified for obtaining revenue enhancement benefits under the applicable pact.

3.5 Union of India v Azadi Bachao Andolan ( 2003 )

In this instance, handbills of the Central Board of Direct Taxes ( CBDT ) were questioned in footings of its cogency. Having one issued in 1994 clarifying that capital additions obtained by Mauritanian occupant from the transportation of portions in India will be taxed in Mauritius merely and the one issued in 2000 provinces that the ‘Mauritius TRC ‘ was plenty in turn outing revenue enhancement occupant position. Consequently, this leads to the right of having the benefits of the pact. However, two writ requests were filed with the Delhi High Court against those handbills.

Another cardinal component taken into consideration was the pact shopping. It is when a 3rd state will entree to the footings of the DTAA enacted between two states by being occupant in one of the states with aim to cut down revenue enhancement liability.

On entreaty, the supreme tribunal of India refused the finding of fact of the Delhi High Court by keeping that the state was free to discourse the proviso of the pact and there is no judiciary power on such affairs. The tribunal further claimed that since nil has been mentioned against pact shopping in the pact, the handbills were non considered as illegal or bad.

3.6 Post Azadi Bachao Andolan

Even though after the judgement of the Supreme Court, rumbles from the revenue enhancement governments of India continue and issues refering round-tripping started to follow. Harmonizing to Wikipedia, unit of ammunition tripping occurs Indian companies shifted Mauritius and have re-routed their financess for investings in India through Mauritius. This is categorized as revenue enhancement equivocation where such houses are short-circuiting revenue enhancement system of India.

In fact, the authorities of Mauritius has taken appropriate steps to battle money laundering and revenue enhancement equivocation. In that regard, a Memorandum of Understanding ( MoU ) was signed between the two states for efficient exchange of information. Furthermore, Mauritius on its portion has besides ratified ‘Know Your Clients ‘ ( KYC ) ordinance by doing it stricter in a position to hinder the abuse of the pact. Besides, A Joint Working Group ( JWG ) was formed in 2006 consisting of members from both Indian and Mauritanian authorities to take any preemptive actions to restrain the abuse of DTAA. ( Refer to appendix G for more steps )

In 2006, the Mauritius Minister of Finance, Rama Sithanen alleged that he was prepared to work together with India “ allow me province really clearly that we will join forces to forestall any alleged abuse of the pact ” he said at a conference on a trip to New Delhi and claimed besides that “ the job of unit of ammunition tripping has been eliminated wholly ”

After rigorous steps taken by Mauritanian authorities, things appeared to hold been restored but late these same issues have come in the timeline and go on to be a topic of treatment and dialogue between the two states. It has been alleged by the Indian revenue enhancement governments that the Indian Government is losing about Rs 2000 crore per twelvemonth on revenue enhancement income due to the pact with Mauritius.

With the recent Vodafone instance ( see appendix H for the instance ) , known as the wakeup call for Indian authorities which although it did non hold any direct nexus with Mauritius has given rise to new regulations. As mentioned earlier, capital additions derived from sale of portions of an Indian company is capable to revenue enhancement in Mauritius and harmonizing to the tribunal determination in 2003, any individual who is in ownership of Mauritanian revenue enhancement residence certification and who does non confine a PE in India, will bask the benefits of the pact irrespective whether substance in Mauritius has been created or non. But now, after the Vodafone instance, it has held that there should be the creative activity of substance in Mauritius in order to profit from the pact.

3.7 General Anti-Avoidance Rules ( GAAR )

GAAR is a bill of exchange guideline which has enacted by the India Direct Tax Code in order for shell companies are non created for the mere intent to get away revenue enhancement. GAAR will take at bring forthing more substance in Mauritius other than merely holding post-box companies will non make, they should hold their office and transporting board meeting in Mauritius, engage local labour and go through a minimal outgo trials. Therefore, to maintain away from acquiring caught by GAAR, these companies will necessitate to demo commercial substance in Mauritius if they want to profit from the Indo-Mauritian pact. However, it is to be noted that the debut of GAAR proviso can overrule the pact. Negotiations are still in the grapevine though to whether to implement it or non.

Chapter 4. Research Methodology

4.1 Introduction

Creswell states “ Research is a procedure of stairss used to roll up and analyse information to increase our apprehension of a subject or issue ” . In this regard research methodological analysis has been used to acquire a clear impression of the capable affair under survey.

4.2 Determine and specify the research inquiry

During my internship, I was offered a traineeship in a planetary concern direction company, since I was exposed to the planetary concern activities and due to the fact that the issue of dual revenue enhancement pact with India was in the timeline, it was decided to look into more on the capable affair. In this regard, emphasize was put on the direction companies as they are the 1 who deals much more with the planetary concern company 1 which get benefits from the dual revenue enhancement pact. Following this, some of the research inquiries were defined:

The public presentation of planetary concern sector in the last 10 old ages?

Do DTAA hold a existent impact on the planetary concern sector?

What is go oning with the Indo-Mauritian pact?

Will this peculiar pact threaten the planetary concern sector?

The above inquiries have helped to get at the selected subject which is “ Global Business Sector: a position of dual revenue enhancement pact ” .

4.3 Research scheme

The research scheme employed has been done into two parts by the usage of quantitative every bit good as qualitative informations. The first portion has been approached by tendency analysis, charts, per centums and tabular arraies for analysing, construing and showing the consequences.

Therefore, in the first case, the undermentioned steps are used to measure the part of planetary concern sector viz. GDP, grosss of Management companies, Substance edifice and in the 2nd case the variable FDI will be used for farther analysis along with the Numberss of DTAAs.

As for qualitative informations, a study questionnaire was considered as an appropriate scheme in run intoing the demands of research aims where it focuses non merely on dual revenue enhancement pact as a whole but besides pays peculiar attending to the Indo-Mauritian pact. In add-on, for analysis intents, the questionnaire was exploited by agencies of quantitative attack.

4.4 Collection of informations

There are two types of informations, viz. primary informations and secondary informations.

Primary informations is information collected through a study where original informations are acquired. This can be done through questionnaires, interviews, observations. In our instance, questionnaire was used to roll up the primary informations as it carries some virtues such as respondents have sufficient clip to give good thought out replies, less expensive, more familiar amongst people, preserves namelessness and easy to analyse. The questionnaires were partially hand-delivered to the respondents where a brief account of the aim of the survey was given to the respondents. The questionnaire was besides accessible online and sends to companies which were willing to reply the study.

Secondary informations encompasses information which is ready made. The variables used all derived from secondary beginning. The term GDP ( Gross Domestic Products ) at factor cost, is a normally used step of the national merchandise which is the aggregative money value of all goods and services produced in an economic system over a specified period of clip. Datas from GDP has been acquired from the CSO ( Central Statistical Office ) . Grosss of direction companies have been taken in footings of turnover and net income before revenue enhancement, these figures obtained from one-year studies of the FSC ( Financial Services Commission ) . Information about substance edifice has been obtained from the FSC. Finally Inward FDI ( Foreign direct investing ) was used, it can be defined as the financess provided by a foreign investor which is non the state beginning of the investor. The information has been taken from Bank of Mauritius. The analysis was under a period of 11 old ages from 2001 to 2011.

Survey Questionnaire

Questionnaire design

The questionnaire ( Appendix I ) started with a covering missive in order to enlist the engagement of staff and guarantee confidentiality of informations for ethical grounds.

The questionnaire consisted of a mixture of dichotomous inquiries ( Yes/No ) and in some inquiries “ Do n’t cognize ” has been inserted in order to avoid colored response in instance the respondent does non cognize the reply, with follow up inquiries ; a four point Likert Scale from “ Strongly Agree ” to “ Disagree ” for respondents to bespeak their feelings about the statements covering the different issues of the job. Open-ended inquiries were used for qualitative grounds in order to heighten our recommendation side.

The questionnaire was divided into four subdivisions to remain focus and facilitate analysis. Section A of the questionnaire consists of three inquiries which concerns respondent profile. Section B focuses on dual revenue enhancement pacts as a whole in order to acquire an sentiment on the impact of such pacts from the respondents and consists of four inquiries. As for subdivision C, it deals chiefly with the dual revenue enhancement pact with India, where the issue of GAAR guidelines has been exploited and this peculiar subdivision contains 10 inquiries. Last, subdivision D concerns four general inquiries which will be used for farther analysis.

The questionnaire was structured in such a manner so as to enable the respondents to explicate their positions associating to the subject under survey.

Sampling size

The mark population to be sampled was the forces of the direction companies ( MCs ) . MCs were taken among the Financial Services Providers as they played an indispensable intermediary function in the Global Business Sector. They are concerned in the formation and disposal of Global Business Companies and offer a assortment of services that comprise of processing applications for GBC 1 and GBC 2 ; supplying company secretarial services ; readying of histories ; supplying registered office installations, moving as corporate legal guardians and supplying resident managers. The trying method used was random sampling, where 20 MCs including corporate legal guardians were chosen out of 166. The study included staff at assorted degrees runing from analyst to manager to guarantee that the sample is representative of the subject under survey.

Pilot proving

Before carry oning the study, a pre-test was carried out. It was viewed as an of import measure to finalise a questionnaire. Four questionnaires were pre-tested indiscriminately among forces of two direction companies. The aim was to guarantee that the inquiries were decently phrased and set. Following the pilot testing, some minor alterations were brought to the questionnaire so that it was easy understood and easier for respondents to make full.

Response rate

It is to observe that the response rate was non so high whereby 82 questionnaires were collected out of 100 within the set deadline. This may be explained by the fact that the officers had busy working agendas which prevent them from make fulling the questionnaire. However, most respondents demonstrated support and involvement in acquiring the questionnaires filled though some of them were rather apathetic and had to be approached several times to finish the questionnaires.

Evaluation and analysis

The information gathered for the study was scientifically analysed, with the usage of statistical package ( SPSS ) and Excel. Data was interpreted and represented utilizing appropriate pictural representations. Therefore, the utility of the collected information was highlighted through proper reading which provided decisions about the job under survey. As for the simple arrested development analysis, the stata package was used.

4.7 Decision

This chapter can be concluded in footings of restrictions of the study. In fact the exigencies of the employees ‘ service and deficit of clip have acted as a hinderance for me to analyze a greater sample size and besides profound observations of different subdivisions of the planetary concern sector. However, it can be gainsaid that the sample taken was cut across the population of the forces of the MCs and gave a true portray of the feelings of the staff for the intent of this research.

Chapter 6: Recommendation and Decision

6.1 Introduction

This chapter provides some recommendations following the research and analysis of the study carried out. These recommendations are proposed in order to heighten the planetary concern sector.

6.2 Performance of the planetary concern sector

In regard of our analysis, the planetary concern sector has been good poised to profit the economic system of Mauritius and it is to think that it has good part to the GDP of the state. However it is to observe the net income derived from the direction companies, an of import planetary concern service supplier has decreased in the last few old ages. Coming to duplicate revenue enhancement pacts, it is no uncertainty that the development of the planetary concern sector is partially due to its dual revenue enhancement pacts came into force with different states.

6.3 Indo-Mauritian pact

The pact is still under dialogue as whether to overrule the pact to follow the GAAR guidelines or to implement restriction of benefits ( LOB ) clause in the pact is still undecided by the authorization concerned. It should non bury that Mauritanian governments are walking excess stat mi to turn to the concern raised by India and will make so in line of the best international patterns. “ If there is any loophole that is to be plugged, we will make it with emphasis, with force and in a really meaningful and effectual mode ” said Mauritius Foreign Minister Arvin Boolell.

Whatever the understanding will be, it will be a win-win result for both parties as, if drastic steps are taken, it will certainly hold terrible reverberation on the states. Furthermore, Mauritius has strong long historical ties with India, India will non set Mauritius in a bad position because of the privilege relationship that Mauritius has with this peculiar state. It should be pointed out that if the same state of affairs had arisen with another state, the pact would be repudiated. For case, for slightly similar grounds the dual revenue enhancement pact with Indonesia was terminated. The grounds advanced by the Indonesian authorities was that there was an maltreatment ( round stumbling ) of the pact whereby doing a loss in gross to Indonesia.A

LoB is an anti-abuse status that prohibited revenue enhancement freedoms to blast entities. If restriction of benefit clause is inserted in the pact, it will look for to formalise a minimal demand for substance. Mauritanian authorization has already given indicant of the understanding to the proviso of such restriction of benefits and it is still under treatment by India. If this is to be implemented, it is expected to predominate and no domestic statute law will overrule the pact.

In instance, the Indian governments go in front with GAAR guidelines which can overrule the pact, Mauritius will hold to stay and to seek how to keep the public presentation of the planetary concern sector. This should non be every bit tough as it is considered by many persons as Mauritius had already got an experience from South Africa GAAR on the DTAA between Mauritius and South Africa. Lessons learnt from it can be implemented.

There is a fright that investors may travel out from Mauritius due to the issue with this peculiar pact. The solution to this is to educate the investors about the legion advantages that Mauritius has. By informing investors that it would be less to work from Mauritius and being a conduit for investing into India, non merely because of its DTAA but besides due to its professional ‘s squads, quality of service and its regulative model, geographical intimacy, cultural affinity amongst others. It is in this mode that Mauritius will non lose its attraction.

6.4 Other solutions to react to the demand of India provided by respondents

There should hold a better KYC cheque to forestall frauds.

Improve transparence on minutess like fiscal checklist provided by FSC which should be filled consequently before filing of fiscal statements

Levy a per centum as revenue enhancement from any capital addition.

Creation of more substance in footings of their being and operations.

6.5 Other issues

To control unit of ammunition stumbling which gives rise to money laundering, the authorities has introduced panoply of statute law since 2002 such as the Prevention of Corruption Act, The Prevention of Terrorism Act and the Financial Intelligence and Anti-Money Laundering Act. One of the at hand ways to restrict unit of ammunition tripping is revelation. Harmonizing to Arvin Boollel, revelation is in fact mandatary. In add-on, Mauritius was regarded as the legal power which has been forthcoming with information, in a study prepared by India on Black money. However, more enforcement of client due diligence will ease in cut downing unit of ammunition tripping and money laundering.

Mauritius has promoted itself as an investing platform to be used by India as a gateway to impart investings into Africa. During the last two old ages, Mauritius has seen a group of Indian concern deputation utilizing the state to put in Africa. It should be noted as at December 2012, A MauritiusA had been used for outward Indian investing of about $ 5.3 billion.

Mauritius being the main beginning of FDI to India and besides the ideal province for Indian outward investing into Africa will go on to provide benefits to both states and should stay so as it is theoretical account that works.

Furthermore, variegation to Africa is a good enterprise since Africa represents a moneymaking market into which Mauritius could tap. In instance there is serious job with Indo pact, the planetary concern sector will be secured since India will be no longer the targeted market.

6.6 Decision

Mauritius has known considerable alterations since independency, it has been shifted nicely from the sugar to the fabric sector, touristry and eventually to fiscal services sector. Its drift to manage cyclical hazards has made the state survived and prospers in the same clip during those different rhythms. In order for the fiscal sector to boom, it has to look beyond the pact paradigm merely like an baby needs to be weaned off from the female parent when he grows. Furthermore, Mr Rama Sithanen, president of IFS, a taking direction company said that there is a strong nexus between the ICT concern sector, outsourcing and planetary concern sector and there is a demand to scale it up with a position to consolidate farther the planetary concern sector. It is to indicate out besides that many states are following this attack.


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