Mauritius seeks GAAR relaxation for cos

Concerned over the proposed amendments to the general anti-avoidance rules (GAAR) in the Finance Bill, 2012, Mauritius has reached out to Prime Minister Manmohan Singh seeking relaxation for companies registered in the island country.

Mauritius Prime Minister Navinchandra Ramgoolam has written to Singh requesting India to not apply the proposed GAAR on companies which have been given a tax residency certificate (TRC) by Mauritius, official sources told The Indian Express.

The official said that the country has also sought more relaxation in other taxes as well from India.

In the Finance Bill, the government has said that hence forth producing a TRC will not be sufficient for availing of treaty benefit. A company seeking benefit of double taxation avoidance agreement (DTAA) with India will have to produce documents other than TRC. GAAR would also be applicable on such companies.

This is likely to impact tax havens and low-tax jurisdictions as foreign institutional investments (FIIs) coming via, say Mauritius, may come under tax net.

The proposal has thus raised alarm among FIIs registered in Mauritius, who were so far reaping the benefit of DTAA between India and Mauritius by showing a tax residency certificate.

As per the existing tax treaty, signed in 1983, companies based in Mauritius are not required to pay capital gains tax in India while in Mauritius there is zero capital gains tax.

According to a circular issued by the Central Board of Direct Taxes in 2000, a TRC by Mauritius will be sufficient for not taxing an FII in India. Based on this circular, many companies have been taking undue advantage of the understanding and have been routing investments to India through Mauritius-based companies to avoid paying taxes.

In an attempt to sooth apprehensions of FIIs, the finance ministry is planning to defer the implementation of GAAR till April 2013.

... contd.

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