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India, Mauritius set to hold fresh talks on DTAA amendments

LiveMint logoLiveMint 27-08-2017 Gireesh Chandra Prasad

New Delhi: India and Mauritius are set to begin a fresh round of negotiations to amend their double tax avoidance agreement (DTAA) to ensure that capital flows into India meet the latest global standards meant to check aggressive tax planning.

Companies registered in Mauritius are the largest source of foreign direct investment (FDI) into India, making it crucial for New Delhi to upgrade its bilateral tax treaty, adopting the latest international practices that prevent multinational companies from artificially shifting profits to low tax countries.

Investments into India routed through Mauritius-based companies crossed $114 billion between April 2000 and June 2017, accounting for 34% of FDI into India during the period, ahead of inflows from Singapore, Japan and the UK.

Bilateral talks were necessitated after Mauritius in July excluded the India-Mauritius DTAA from the scope of a multilateral deal brokered by the Organisation for Economic Cooperation and Development (OECD) aimed at upgrading all existing bilateral tax treaties of participating nations to the latest anti-tax avoidance norms.

The tax standards prescribe greater transparency in reporting of business operations by companies and limit their ability to exploit tax arbitrage.

India, which was an active participant in drafting the multilateral treaty, adopted it in June in Paris but when Mauritius joined the club a month later, it kept the bilateral treaty with India outside the scope of the multilateral deal. Including the two nations, 71 countries are party to the global anti-tax avoidance framework.

Two people with knowledge of communications between Delhi and Port Louis, on condition of anonymity, separately said talks to upgrade the DTAA will start soon.

“We have to work with Mauritius to amend the DTAA and prevent treaty abuse,” said one of the two cited above.

An email sent on Friday evening to the ministry of finance and economic development of Mauritius, which signed the multilateral agreement, remained unanswered.

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