Mauritius keeps tax treaty with India outside purview of MLI

Mauritius has notified 23 of its tax treaties for modification by OECD’s Multilateral Instrument (MLI) to implement tax treaty-related measures to prevent Base Erosion and Profit Shifting (BEPS). However, it has kept its double taxation avoidance treaty with India out of the purview of the global agreement that seeks to prevent companies from avoiding taxes.

The move to exclude India is expected to address the concerns of overriding impact of MLI on the revised tax treaty between India and Mauritius.

Significance of this moveImage result for bilateral tax treaty

  • Mauritius’ move to keep the bilateral tax treaty with India outside the covered agreements for MLI would mean that the terms of MLI would not apply to any transaction entered between tax residents of India and Mauritius.
  • This also indicates that the tax treaty related BEPS measures will not impact investments in India routed through Mauritius, particularly the grandfathering of investments provided through the amendment to the bilateral tax treaty in May 2016.

MLI

  • The multilateral instrument (MLI) is a legal instrument designed to prevent Base Erosion and Profit Shifting (BEPS) by multinational enterprises.
  • BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
  • The MLI allows jurisdictions to transpose results from the OECD/G20 BEPS project, including minimum standards to implement in tax treaties, to prevent treaty abuse and “treaty shopping”, into their existing networks of bilateral tax treaties in a quick and efficient manner.
  • It was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.
  • The OECD is the depository of the MLI and is supporting Governments in the process of signature, ratification and implementation.
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