India - Mauritius tax treaty update
Protocol to amend double taxation avoidance agreement (DTAA) that includes a principal purpose test rule
India and Mauritius have signed a protocol to amend their double taxation avoidance agreement (DTAA) that includes a principal purpose test (PPT) rule to align with global efforts against treaty abuse, particularly under the BEPS Action 6 framework.
The application of the PPT may also extend to pre-April 2017 investments that were otherwise grandfathered, unless clarified. With the change, the benefits of the tax treaty can be denied by the tax authorities if one of the principal purposes of the transaction/arrangement is to obtain a tax benefit.
Historically, Mauritius was a preferred jurisdiction for engaging in investments in India due to the non-taxability of capital gains until 2016 when the countries signed a revised tax agreement, giving India the right to tax capital gains in India on transactions in shares acquired through the island nation on and after 1 April 2017.
The protocol takes effect upon both countries notifying each the other the completion of the procedures required by law to bring it into force.
For more information, contact any member of the KPMG Sovereign Wealth and Pension Funds Tax team, including:
Anjani Sharma | anjanisharma1@kpmg.com