India and Mauritius have finally agreed to amend their 32-year old bilateral tax treaty in an attempt to check 'round-tripping' of funds and ensure that no entity gets away without paying taxes in either country.
The new agreement also provides an updated system for exchange of information, which will ensure the names of entities investing funds through the island nation are available to tax authorities. With no capital gains tax payable in either country, investors had been routing funds into India through Mauritius, which is the biggest source of inflows into the country. The revised Double Tax Avoidance Agreement will also impact other treaties such as the one India has with Singapore, where the benefits are linked to Mauritius.
India has been in the works of the Mauritius treaty since 1996, but talks fell through in 2002. They only resumed after Prime Minister Narendra Modi took up the issue during his visit to the state last year. New international frameworks such as Base Erosion, and Profit Sharing were also included in the agreement to make sure multinationals did not get away without paying taxes across the globe.
