Experts downplay Mauritius tax protocol fears

Though experts say it creates no new anti-abuse powers, the Mauritius Cabinet's ratification of a 2024 protocol to its tax treaty with India, introducing the Principal Purpose Test, has sparked investor reservations over broader scrutiny.

Key points

• The introduction of the PPT has triggered concern over whether Indian tax authorities could gain sweeping powers to challenge DTAA benefits asserted by Mauritius investors.
• The Mauritius protocol should not be viewed as giving Indian tax authorities a blanket power to deny treaty benefits.
• Tax experts remarked the revised treaty does not create a new anti-abuse powers and that the fears are unfounded.

Notably, the protocol to the Double Taxation Avoidance Agreement (DTAA) with India introduces a new anti-abuse provision, raising reservations that Indian tax authorities may gain heightened powers to scrutinise investors from Mauritius.

Notably, the aim of the protocol is to align the India-Mauritius DTAA, signed in April 1983 and amended by a protocol in May 2016, with global Base Erosion and Profit Shifting (BEPS) anti-abuse provisions. The protocol introduces the Principal Purpose Test (PPT), under which tax authorities can deny treaty benefits where obtaining the tax benefit was one of the main purposes of a transaction.

Notably, the introduction of the PPT has triggered concern over whether Indian tax authorities could gain sweeping powers to challenge DTAA benefits asserted by Mauritius investors.

"In practical terms, it gives tax authorities a stronger tool to address treaty shopping, while genuine investors should not be denied benefits merely because they have invested through Mauritius, " remarked Manish Garg, partner-tax, AKM Global.

Tax experts remarked the revised treaty does not create a new anti-abuse powers and that the fears are unfounded. Instead, it provides a treaty-based route alongside the existing General Anti-Avoidance Rule (GAAR).

"The Mauritius protocol should not be viewed as giving Indian tax authorities a blanket power to deny treaty benefits. The Principal Purpose Test is an internationally accepted BEPS anti-abuse standard, aimed primarily at treaty shopping, " Garg remarked.

For now, experts downplay Mauritius tax protocol fears remains the part of the story worth watching, and further updates are likely as more details are confirmed.