Arvin Boolell, Mauritian Minister of Foreign Affairs, welcomes the recent clarity provided by the finance ministry on the General Anti-Avoidance Rules (GAAR). He, however, says a few uncertainties need to be removed, adding Mauritius is ready to put a clause on the minimum requirement for a substance in the tax treaty with India. In an e-mail interview with Vrishti Beniwal, he says the meeting between the two countries on treaty renegotiations in February/March “will be a determinant”. Edited excerpts:
Do the recent announcements by Indian Finance Minister P Chidambaram on GAAR address your concerns?
Global investors seek to operate in a climate of certainty, reliability and predictability and the recent decisions effectively contribute to greater certainty; these would facilitate investment flows into India. We share the view that investments into India should contribute to its higher economic growth. We are, therefore, pleased India has taken decisions to further clarify certain issues relating to GAAR and its implementation, including its deferment by two years. These decisions would surely contribute to addressing the remaining uncertainties that may still be weighing on the minds of potential investors into India. One of these is the fact that investors do not know what their tax exposure is, with respect to investments made after 30 August 2010. I must point out the contents of the GAAR legislation are a matter of domestic tax sovereignty, which we fully respect.
India has been trying to renegotiate the double taxation avoidance convention (DTAC) with Mauritius for a long time. Is Mauritius willing to address India’s concerns regarding taxation of capital gains?
The discussions of the joint working group, which would meet in India soon, would deal with concerns of both countries on the tax treaty and try to reach a mutually beneficial outcome. As I have mentioned in the past, Mauritius stands ready to walk the extra mile in considering the concerns of India, while not depriving the DTAC of its core and removing all uncertainties. It must be stressed in addition to their special and close relationship, India and Mauritius have common and shared interests that go beyond the DTAC.
What would be the key points in the DTAC renegotiation talks between the two countries next month? Have you agreed to put a limitation-of-benefits’ clause?
The introduction of a limitation-of-benefits clause in the tax treaty would seek to formalise a minimum requirement for substance. During my visit to India last year, I had already indicated our agreement to the principle of such a limitation of benefits. The details are being discussed and we hope to advance on this issue at the next meeting of the joint working group in New Delhi.
Are the two countries looking at a deadline for concluding the negotiations to provide clarity to investors?
Indeed, we are fully conscious investors need visibility, certainty and predictability to do business. We are, therefore, determined to come to an early conclusion. Deliberations at the next meeting of the joint working group in New Delhi in February/March 2013 would be a determinant in this regard.
Is Mauritius taking more steps to ensure investors don’t misuse the treaty and route investments through the island nation merely to avail of tax benefits?
Through the years, Mauritius has demonstrated its unswerving commitment to ensure the tax treaty is used legitimately. Numerous regulatory and legislative changes have been made and steps have been taken to accommodate greater transparency and exchange of information. These range from a memorandum of understanding between the Securities and Exchange Board of India and the Financial Services Commission (Sebi’s Mauritian counterpart) to the sharing of intelligence between financial intelligence units of the two countries, the presence of an Indian tax cell at the Indian High Commission in Mauritius and now, the signature of a full-fledged tax information exchange agreement, under the treaty for exchange of information. The text for this was finalised at the last meeting of the joint working group in Mauritius in August. The need for Mauritian investment vehicles to clearly show commercial substance is being emphasised by Mauritian authorities. Also, Mauritius has one of the most stringent regulatory frameworks, in full compliance with internationally accepted standards, norms and best practices.
What about the proposed comprehensive economic cooperation and partnership agreement (CECPA)? India has linked this with DTAC negotiations.
We are looking forward to progress on the CECPA, which would enhance the scope for trade and business generally. Negotiations for the CEPCA and the DTAC are decoupled. At this stage, it is better not to merge bilateral discussions and these. We are hoping for an early signature of the preferential trade agreement (PTA), negotiations for which have are nearly over. The PTA is one of the four chapters of the CECPA. At the beginning of the CECPA negotiations, the two parties had agreed the PTA would be signed as an early harvest (ahead of the CECPA). The PTA would substantially eliminate barriers to trade in many products and, therefore, had the potential to increase the volume of bilateral trade. It would be a win-win agreement for both countries.
In the last one year, has there been a drop in outbound investments to India through Mauritius?
We understand last year, overall investment flows to India may have declined, as a result of the prevailing uncertainties stemming from several factors, including developments in India, the Euro debt crisis and weak US and global growth prospects. The pattern in investment to India through Mauritius followed this trend. However, Reserve Bank of India data showed for 2011-12, there was a significant increase (44 per cent) in foreign direct investment to India through Mauritius, compared to the previous financial year.
Mauritius had proposed India use it as a gateway for outbound investments to Africa. How did the Indian authorities respond to this?
There is definite interest in the opportunity for India to utilise Mauritius as a gateway for channeling investments into Africa. Mauritius is already a location of choice to establish private equity and other investment structures to direct capital into African markets. Our competitive advantage rests on the quality of financial services, our membership in African regional economic communities such as the Southern African Development Community and the Common Market for Eastern and Southern Africa (which provide a combined market of about 600 million people on a duty- and quota-free basis) and the availability of tax treaties and investment-protection agreements with a number of African countries. We have been very active in India in the last couple of years to further promote Mauritius as an investment and trading platform of choice for Africa and the region. Our institutions have collaborated with major industry associations like the Confederation of Indian Industry, the Federation of Indian Chambers of Commerce and Industry, All India Management Association and the Associated Chambers of Commerce and Industry of India to this end and we have already started seeing positive results. Further, through the last two years, Mauritius has welcomed a number of Indian business delegations considering using Mauritius as a platform to Africa. This shows Indian authorities firmly believe in the pivotal benefits Mauritius can bring to the Indian private sector and the government as the access point for Africa. It should be noted as of December, Mauritius had been used for outward Indian investment of about $5.3 billion.