Mauritius has been a popular location for intermediary holding companies for multinationals and others investing in India. This popularity is due to several factors including the capital gains tax exemption available under the India-Mauritius Tax Treaty. The treaty, which had underpinned the emergence of Mauritius as the dominant channel for foreign direct investment into India, has been under constant scrutiny by Indian tax authorities as a result of alleged abuse by investors.In the past, a circular issued by the Central Board of Direct Taxes that allows tax treaty benefits based on a valid Tax Residency Certificate (TRC) of Mauritius, and the Supreme Court ruling (in the case of Azadi Bachao Andolan 263 ITR 706) upholding the validity of the circular, had provided a reasonable level of certainty to taxpayers. With a series of high-profile court rulings, including one from the Authority for Advance Rulings (in the case of E*Trade Mauritius Ltd 324 ITR 1, where it was observed that the legal structure of the Mauritius company cannot be disregarded and legitimate tax planning was permissible), it seemed as if the status quo was restored on the use of the tax treaty.
Source: Hindu Business Line
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