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BW Businessworld

Mauritius Stays Haven

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The Mauritius Tax Treaty stays supreme. That's the message that came from the Authority for Advance Rulings (AAR) on income tax matters last week. The AAR ruled that a Mauritius-based private equity fund with atax residency certificate is entitled to claim the benefit of the Indo-Mauritius tax treaty until the introduction of the proposed General Anti-Avoidance Rules (GAAR) in the country.

The revenue department argued that Dynamic India Fund, a private equity fund, was set up in Mauritius only to take advantage of the tax treaty, since only four of its 55 investors were based in Mauritius, and three of the five directors on its board were Indians. The Indo-Mauritius tax treaty allows an investor to pay capital gains tax at near-zero rates charged by Mauritius, compared to the 20 per cent of profits levied by India. The AAR rejected that contention, ruling that the fund did not have to pay tax on profits made from the sale of its Indian investments.

This ruling comes as a relief to foreign investors who use the Mauritius route to enter India, though it will most certainly be short-lived. The order clearly recognises that in a post-GAAR regime, they may view this transaction differently for taxation.

This order does not make any difference to other ongoing cases such as Vodafone or the Birla-AT&T dispute with the tax department.

(This story was published in Businessworld Issue Dated 06-08-2012)