THE DELHI HIGH COURT quashed a circular that had made it easy for corporations that use Mauritius as a staging post for investments into India to qualify for favorable tax treaty b

THE DELHI HIGH COURT quashed a circular that had made it easy for corporations that use Mauritius as a staging post for investments into India to qualify for favorable tax treaty b

August 01, 2002
THE DELHI HIGH COURT quashed a circular that had made it easy for corporations that use Mauritius as a staging post for investments into India to qualify for favorable tax treaty benefits.

Suzanne Gujadhur Bell said from Port Louis: “This has caused ructions in Mauritius but at the end of the day, it will mean that clients using Mauritius will have to build up substance in Mauritius. The decision is to be appealed by the Indian government.”

Many large corporations make their investments in India through holding companies in Mauritius. The tax treaty between the two countries offers two benefits. One is a lower rate of withholding tax on dividends paid from India to Mauritius, and the other is an exemption from capital gains taxes in India upon sale of the investment. To qualify for these benefits, the holding company must be a “tax resident” of Mauritius.

The Central Board of Direct Taxes had issued a circular to Indian tax offices in April 2000 ordering them to accept residence certificates issued by Mauritius as proof of tax residence in Mauritius.

Meanwhile, rumors that the Indian government is pressuring Mauritius to renegotiate the tax treaty appear to be without merit. Raj Shroff with Nishith Desai Associates reports from Mumbai that the Indian finance minister told one of the leading newspapers recently that there will not be any renegotiation of the treaty.

Keith Martin