Financial sector operators are sounding the alarm on the circulating text of the new tax protocol between India and Mauritius. This is what emerged from a round table organized by Mauritius Finance on May 17 in Moka. Minister Sunil Bholah pledged to seek clarification on gray areas in the new protocol from the Indian government.

The roundtable brought together members of Mauritius Finance, Minister of Financial Services and Good Governance, Sunil Bholah and leading financial experts to discuss the recent amendments to the Mauritius-India tax treaty. This new protocol, signed by both parties last March, introduces key changes, including the replacement of the old preamble and an anti-abuse provision known as the Principal Purpose Test (PPT). These amendments were made to address concerns related to tax evasion and ensure alignment with the international tax standards of the Organization for Economic Development Co-operation (OECD) regarding base erosion and shifting of profits (BEPS). Although this revision was inevitable given the minimum standards of BEPS and the OECD, the new protocol raises many questions within the financial services industry.

Samade Jhummun, CEO of Mauritius Finance, explains that the non-alignment of Mauritius would have resulted in our inclusion on a list of non-compliant countries. “However, after the text of the protocol was leaked, investors and operators quickly panicked because tax certainty was removed. It is imperative to rectify the situation or renegotiate the protocol. We must dispel all uncertainties as soon as possible, before the ratification of this new protocol,” he emphasizes.

For clarification

Financial sector operators expect clarification on the elimination of “grandfathering”, a transitional provision granted in the wake of the revision of the DTAA in 2016. “By deciding to renegotiate bilaterally and not through the Multilateral OECD Convention (MLI) signed by Mauritius in 2017, we hoped to obtain certainty regarding 'grandfathering investments'. The article on retroactivity casts doubt on the implementation of the PPT. Will Indian tax officials be able to reopen assessments given that the statute of limitations in India dates back ten years? » explains Wasoudeo Balloo, head of the tax and legal department at KPMG Mauritius.

Experts are therefore wondering about the obstacles that the TPP will impose on “grandfathering investments”. Akshar Maherally, Managing Director of WTS Tax Consulting, believes that these investments will have to go through a few additional steps before obtaining exemption from the Capital Gains Tax, unlike the 2016 protocol when tax rights were granted without conditions.

For Rubina Toorawa, Country Head at APEX Group, the Mauritian jurisdiction is about to lose a key provision of the old preamble which was the predominant factor for 32 years, which was enshrined in the treaty as “mutual cooperation for the promotion trade and investment between Mauritius and India. Based on similar protocols implemented by other jurisdictions via the MLI, everyone agrees to call for clearer guidelines in order to reassure investors but above all to maintain Mauritius' competitive advantage. Following the alignment of all jurisdictions with OECD standards, Mauritius must exploit its remaining competitive advantages, such as its strategic position between Asia and the African continent.

While awaiting clarification from the authorities, the financial services industry is holding its breath and sticking to the commitment made by Minister Bholah during his speech. “Under the new protocol, the future of the grandfathering provision remains uncertain. The protocol will not be implemented until it is ratified by both countries. The government will seek clarification from India. It is essential to approach this process with optimism,” said the minister.

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