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Below the Quote on India and Mauritius have signed a protocol to amend the DTAA - Manoj Purohit, Partner & Leader - Financial Services, Tax & Regulatory Services, BDO India

The recently issued press release mentions the Protocol being signed by India and Mauritius on March 07, 2024. The India-Mauritius Double Tax Avoidance Agreement is amended by updating the Preamble and including an Article on ‘Principal Purpose Test (PPT)’, thereby making it in line with the minimum standards of the Base Erosion and Profit Shifting (BEPS) Plan.

The relevant amendment will take effect as soon as both countries ratify it under their respective laws. Further, Article 3(2) states that the protocol will apply irrespective of the date on which the taxes are levied or the taxable years to which they apply. The amendment does not clarify whether or not past investments will be grandfathered, albeit, the PPT provision has been introduced as a non-obstante clause of the treaty. It is possible to interpret that the Protocol shall prevail over other provisions of the treaty, including the grandfathering provision. In line with the expectations of the offshore funds,  a formal clarification from the authorities is expected to remove any ambiguity on the grandfathering of investments.

Post-2017 amendments, wherein the capital gains tax exemption on equity shares was removed, the FPIs have been conscious of having a substance in Mauritius for claiming the treaty benefits and beneficial tax regime for Interest and Dividends tax. There are ongoing litigations on claims on treaty benefits, mostly for Mauritius-based based FPIs basis the TRC. Additionally, in the recently concluded assessment proceedings of some of the Mauritius-based funds the authorities had specifically asked the funds to demonstrate substance and to prove that the main purpose of operating from Mauritius is not for obtaining the tax benefit.

Mauritius stands at fourth rank in terms of FPI inflows and accounts for nearly 6% of the total FPI investments in India. In terms of FDI inflows, Mauritius was at the second spot the second during the FY 2023. The Mauritius Government had already made significant changes to local regulations to put in place substance requirements to be fulfilled by FPIs while obtaining TRC which is required to claim treaty benefits.

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