Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TDS :: cpt :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: empanelment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: form 3cd :: VAT Audit :: ACCOUNTING STANDARDS :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4%
 
 
News Headlines »
 Directions under section 119 of the Income-tax Act, 1961
 Securities excluded from GST ambit in revised Bill
 GST dilemma: Hope fades for new tax regime
 5nance.com launches tax investment platform
 Is government tapping your phone?
 Income tax department to use analytics to look for discrepancies in bank accounts
 GST Council fails to break deadlock over indirect tax regime, next meet on Dec 11 and 12 to hammer out differences
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful

Tax treaties with other countries must be honoured
October, 20th 2008

The interpretation of the tax treaty with Mauritius has for long been a subject of serious controversy in India. The provision of the tax treaty that a resident of Mauritius would not be taxed in India on capital gains arising out of sale of securities in India has given rise to the problem.

The controversy started after the CBDT issued a circular that a certificate of residence issued by Mauritius will be sufficient evidence for accepting the status of residence as well as ownership for applying the provisions of the treaty.

The above circular was, however, declared invalid by the Delhi High Court (256 ITR 563). But the Supreme Court reversed the decision of the high court and declared the circular as valid (Union of India versus Azadi Bachao Andolan (2003) 263 ITR 706).

It was thought that the controversy had been resolved. But Finance Minister P Chidambaram had reportedly said that the Mauritius route is being used by some Indian companies to do round-tripping of funds. The Mauritius deputy prime minister stated that they should not be singled out. He said that keeping in view historical, cultural, political and diplomatic ties between the two countries, there is a need for global solution that should not penalise Mauritius.

In the meantime, the Mauritius Income-Tax Act has also been amended in respect of tax residence certificate.

The controversy of the Indo-Mauritian tax treaty has again surfaced during negotiations for the proposed Comprehensive Economic Co-operation Partnership Agreement. The Indian finance ministry feels that the tax treaty is being grossly misused. Tax officials estimate that the treaty has been costing to the Indian exchequer over Rs 4,000 crore every year. This loss is due to exemption from tax on capital gains for investors routing their funds through Mauritius-based investment entities.

The contention of the Indian revenue officials is: There is a phenomenal loss of tax to the Indian exchequer due to the exemption of

capital gains tax. The investors use Mauritius-registered companies and offshore trusts to hold assets abroad beyond the reach of Indian tax laws. This is round-tripping, where Indians re-route their money stashed abroad through the Mauritius route, leading to misuse of the tax treaty.

Further, the residents of a third country also take advantage of the Indo-Mauritius tax treaty and escape paying capital gains tax in India. This practice is called treaty shopping and results in revenue loss to India.

On the other hand, foreign direct investment equity inflows from Mauritius account for the largest share of the total inflows into the country. According to the latest available data, cumulative inflows from April 2000 to June 2008 stood at Rs 1,27,554 crore (nearly $30 billion), accounting for over 44per cent in rupee terms of total inflows of Rs 3,11,912 crore (nearly $72.5 billion).

In this context, the government should seriously consider the observations of the Supreme Court in the case of Azadi Bachao Andolan (supra):

In developing countries, treaty shopping is often regarded as a tax incentive to attract scarce foreign capital or technology. They are able to grant tax concessions exclusively to the foreign investors over and above domestic tax law provisions. In this respect, it does not differ much from other similar tax incentives given by them, such as tax holidays, grants, etc. The developing countries allow treaty shopping to encourage capital and technology inflows, which developed countries are keen to provide. The loss of tax revenues could be insignificant compared to the other non-tax benefits to the economy.

Double Taxation Avoidance Agreements are treaties between two Sovereign States. They should be properly honoured by the respective governments. Voicing of dissent or dis-satisfaction whether at bureaucratic level or at ministerial level is highly undesirable. It sends wrong signals to foreign investors. The finance ministry should pay heed to the sane advice of the Hon'ble Supreme Court rather than issue statements which will only discourage inflow of funds into India.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System developers CMS developers Content Management Solutions CMS Solutions CMS India Content Management System India CMS development India Website CMS Website Content Management India Portal CMS India CMS Outsourcing CMS Vendor Complete CMS Custom CMS Services

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions