In a bid to allay the Indian government’s fears about round tripping, the Financial Services Commission of Mauritius has imposed a stringent set of conditions on Mauritius-based companies investing in India. THE Financial Sevices Commission of Mauritius has imposed a stringent set of conditions on Mauritius-based companies investing in India in a bid to allay fears about round-tripping of funds. The Mauritian government has also warned that licences of entities investing in India would be revoked if they source funds from India.

The move provides a new twist to the lingering debate over allegations of Indian Corporates using the Mauritius route to escape capital gains tax. Mauritius is the top source of foreign direct investment (FDI). During the first seven months of the current financial year, nearly $8 billion of the $18 billion FDI flowing into India came from Mauritius. An annual audit of Mauritius-based entities investing in India has been made mandatory, said Milan J N Meetrabhan, chief executive of the Financial Services Commission of Mauritius. The Indian side has been apprised of the steps taken to check round-tripping , and Mauritius hopes that this will take care of the concerns about tax evasion.

The move is significant since it comes at a time when the government is planning to review all double taxation avoidance treaties to plug loopholes. Also, the direct taxes code which is to replace the I-T Act next year proposes a number of changes in the country’s tax laws, including some that will nix the capital gains tax exemption enjoyed by investing through havens.

A Mauritian team headed by Dr Rama Sithanen, vice prime minister and minister of finance and economic empowerment, met FM Pranab Mukherjee on Tuesday. There are concerns and we are addressing them. Mauritius is not a tax haven, the minister said.
Mr Sithanen said that FDI was flowing into India through Mauritius not because of the tax benefit only . There are a number of other countries with more attractive tax treaties with India, but so much investment is not flowing through them. Mauritius is preferred because we have a transparent regulatory system and a sound financial sector, he emphasised. The discussions and analysis taking place after the financial sector meltdown has proved that Mauritius is not a tax haven, the minister said.

He urged Indian companies to tap the vast African market through Mauritius, which provides a competitive investment climate. A new business can be launched with three days. We have a single tax rate of 15% and Indian companies will find it an excellent base for global expansion, he added. The Mauritius government is now seeking to attract Indian investment, especially in sectors like tourism, hospitality, education, ICT, BPO and renewable energy.

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