This is a bit of a mystery, since India also renegotiated in 2016 its double taxation treaty with Singapore in order to fill exactly the same loopholes as for Mauritius, namely the residence-based taxation on capital gains on the sale of shares. Perhaps Singapore`s strengths other than the financial centre, such as the ability of companies to raise funds at relatively lower rates, and an effective dispute resolution system, will continue to make it a preferred place for Indians to set up businesses. Naomi Fowler ■ India and renegotiation of its double taxation treaty with Mauritius: an update Pass your article via our online form Click here Note* We only accept original articles, we do not accept articles already published on other websites. For more details, please contact: editor@legalserviceindia.com The Double Taxation Convention between India and Mauritius (hereinafter referred to as “DBA”) provides for a possible tax exemption for foreign investors, making Mauritius one of the preferred options for investments in India, which exempts capital gains tax resulting from the sale of shares in an Indian company. In the past, Indian Revenue has challenged the merits of the capital gains tax exemption under the tax treaty, on the grounds that the Mauritian company has no real commercial substance and was created only for trade in goods. This approach has given rise to serious and long-term litigation in a number of cases of investments in India through Mauritius. Article 13(4) DBAA provides that profits from the transfer of shares by a registered office established in a Contracting State may be taxed only in that State. In addition, the Central Board of Direct Taxes (CBDT) specified in Circular No 789 of 13.04.2000 that, in accordance with Article 13(4) of the DBA, a resident of a State is any person taxable under the laws of that State. In one of these prestigious legal proceedings, the Indian Supreme Court confirmed, after having passed into consideration the provisions of the Treaty and CIRCULARS 682 of the CBDT of 30 March 1994 and 789 of 13 April 2000, that the Mauritian Company can claim the benefits of the tax treaty if it has received from the Mauritian tax authorities a “Tax Residency Certificate” (“TRC”). On the basis of the Supreme Court`s ruling, companies with a valid TRC should be entitled to contractual services.
However, despite the Apex Court`s ruling, the debate has not yet been settled and the tax authorities have examined Mauritian investments and tried to deny the treaty the benefits of the treaty under the pretext of treaty shopping. Recently, the Authority for Advance Rulings (hereinafter AAR) confirmed that capital gains from the sale of Indian shares held by a company established in Mauritius should only be taxed in Mauritius, in the case of D B Zwirn Mauritius Trading No. 2 Ltd (hereinafter D B Zwirn). In the present case, the applicant sold its entire stake in Quippo Telecom Infrastructure to another company established in Mauritius. . . .