Mauritius: Double Tax Treaties
Mauritius has entered into a considerable number of double-tax treaties (unusually for a low-tax jurisdiction). Generally speaking, the treaty benefits are available to all Mauritian companies other than International Companies.
All of Mauritius' treaties are based on the OECD model treaty, and contain exchange of information clauses; however, the exchange is limited to matters concerning the working of the treaties themselves.
The treaty with India, which had underpinned the emergence of Mauritius as the dominant channel for FDI into India, came under attack from Indian tax authorities in 2002 as a result of alleged abuses by Indian-resident investors. After a series of high-profile court hearings, the status quo appeared to have been restored. However, rumblings from the Indian authorities with regard to the alleged 'abuses' are still continuing in 2011 and it was announced in June that discussions between the two countries to amend the treaty are to commence soon.
In October 2006, in an attempt to head off pressure from India to change the countries' Double Tax Avoidance Agreement, the Mauritian government announced that it would tighten up rules on the issuance of Tax Residence Certificates, and in future would issue them for only one year at a time.
Mauritius Minister of Finance, Rama Sithanen Mauritius said earlier that month that he was willing to co-operate with India to prevent misuse of the treaty.
"Let me state very clearly that we will collaborate to prevent any alleged misuse of the treaty," said Mr Sithanen, at a news conference on a trip to New Delhi. "But keeping in view historical, cultural, political and diplomatic ties between the two countries we need a global solution that will not penalise Mauritius."
He claimed that: "The problem of roundtripping has been eliminated completely."
In September that year, an Indian government official had said: “We are proposing to bring the DTAA with Mauritius on a par with the DTAA with Singapore. The DTAA with Singapore had included additional clauses to check round-tripping of investments.”
The new proposals were said to include a rule that only companies listed on a recognised stock exchange be eligible for capital gains tax exemption under the treaty, and that a company should have a total expenditure of USD200,000 or more on operations in the residence state (ie Mauritius) for at least two years prior to the date on which a capital gain arises. Under the treaty as it stands, there is a very basic residence requirement. These provisions would match those included in the India/Singapore treaty.
In January 2007, it emerged that talks between Indian and Mauritian officials would focus on changes to the two countries' Double Tax Avoidance Treaty.
Indian tax officials expressed the hope that Mauritius would stiffen the requirements for tax exemptions under the DTAA, and pointed to a new protocol that Mauritius had added to its treaty with China, under which capital gains arising in Mauritius on the sale of Chinese assets are subject to a 10% tax in China in some circumstances. The protocol came into force on 1st January 2007.
The Mauritian authorities had moved to placate the Indians in 2006, tightening up on the issuance of Category 1 Global Business Licence applications for Collective Investment Schemes, Private Equity Funds, Venture Capital Funds, Investment Companies, CIS Manager, and Investment Adviser/Managers; but India announced that it wanted further action before it would implement parts of the Comprehensive Economic Cooperation Partnership Agreement (CECPA) which will be highly favourable for Mauritian exports to India.
The DTAA with Indonesia, for somewhat similar reasons, was lapsed on 1st January 2005 after the Indonesian government gave notice of termination in 2004 and refused to discuss the matter. "The reasons given were that, following an assessment and evaluation of the implementation of the treaty, the Indonesian government has concluded that there was an abuse that was inflicting a loss upon Indonesia. The letter referred specifically to those foreign companies that are registered in Mauritius as Global Business Licence companies and to our domestic legislation tht enabled them to obtain tax dispensation or nullification on their business income from Indonesia," said the government.
In November 2008, a proposal by Japan Tobacco International's Mauritius operation to increase its stake in its Indian arm from 50% to 74% came under fire from several sides.
The increase was cautioned against by the Finance Ministry, which argued that allowing such a move would constitute a tacit approval of 'treaty shopping', a particular bugbear of the Indian authorities when it comes to companies routing investment via Mauritius.
In August 2009, India said that it is revising its double taxation avoidance treaties, especially those which were concluded prior to 2004. Its objective is to renegotiate anti-abuse provisions.
The following countries are among those which have double-tax treaties with Mauritius (an * indicates that the treaty is awaiting ratification):
In 2006, a Protocol to the China-Mauritius DTAA was signed. The Protocol amended the Capital Gains and Exchange of Information Articles of the DTAA, making harder for Mauritius based companies investing in China to get a capital-gains tax exemption.
12 other treaties are being negotiated with: Algeria, Burkina Faso, Canada, Czech Republic, Greece, Monaco, Portugal, Republic of Iran, Saudi Arabia, St. Kitts and Nevis, Vietnam and Yemen.
Five other treaties are awaiting signature: Egypt, Malawi and Ghana.