According to a report in the Business Standard dated 7 November the Foreign Investment Promotion Board (FIPB) has pulled up the Department of Revenue for rejecting foreign direct investment (FDI) proposals routed through Mauritius on the apprehension that such a route is used for “treaty shopping” reasons. The FIPB has communicated a conscious policy decision to override such objections from the department.
In the past few months, the department has held a generic objection to proposals routed through Mauritius, arguing that such investment proposals were structured in order to avoid tax. The department alleged that such transactions involved “treaty shopping” under the India-Mauritius Tax Treaty to obtain beneficial treatment for capital gains income, thus depriving the exchequer of tax revenue. The FIPB has countered this argument by pointing out that the India-Mauritius Tax Treaty is still valid and operational and the department’s objection on such grounds is unacceptable.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
