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India-Mauritius double tax treaty – End of the transitional period (fr)

India-Mauritius double tax treaty – End of the transitional period (fr)

Finctax | Tax treaty

Following the amendment of the India-Mauritius double tax treaty in May 2016, India is able to impose capital gains tax on the disposal or transfer of shares in an Indian company, acquired on or after 1 April 2017. The charge is subject to exemptions under Indian tax law.

The protocol also allowed for a transitional period whereby shares disposed or transferred between 1 April 2017 and 31 March 2019 suffered tax at 50% of the Indian tax rate on capital gains. Whilst the transitional period has ended, it is also important to note that shares acquired prior to 1 April 2017 will still be exempt from capital gains tax.

However, treaty benefits are not always a given.

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The Authority for Advance Rulings issued 2 different rulings on the application of the capital gains tax exemption under the treaty (AAR No. 1128 of 2011 and AAR No 1129 of 2011) in 2018. The distinguishing factors between the 2 cases is that in the case where the exemption was applied, the Mauritian entity disposing of the shares acted as an independent company by taking its own decisions.

It also documented its purchase of shares properly and was deemed to be more than a nominee company.

The rulings echo international recommendations from the OECD and the EU to fiscally attractive jurisdictions such as Mauritius: in order for offshore structuring to be valid, the offshore entity must show, at the very least, that it is capable of independent decision making.

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