Mauritius Agreement

The Mauritius Agreement: Understanding the Tax Treaty

The Double Taxation Avoidance Agreement (DTAA), also known as the Mauritius Agreement is an agreement between India and Mauritius, which was signed in 1983. It is aimed at eliminating double taxation of income arising in one country but being paid to residents of the other country. As a result, it has been instrumental in promoting cross-border investments and doing business between the two countries.

The Mauritius Agreement has been a topic of discussion in recent years due to its perceived role in facilitating round-tripping of Indian funds. Round-tripping is the process of routing funds from India to a third country in the form of foreign investment and then reinvesting it back into India through the same route to benefit from the tax benefits available under the agreement.

However, in 2016, the agreement was revised to include a limitation of benefits (LOB) clause. Under this clause, if a company that is a resident of Mauritius wants to claim benefits under the treaty, it must meet certain conditions, such as being a genuine company with a substantial business presence in Mauritius.

The LOB clause has significantly reduced the use of the Mauritius Agreement for round-tripping and is a step towards curbing tax evasion. It has also led to the revision of other DTAA agreements that India has with other countries.

The Mauritius Agreement has also been instrumental in promoting foreign direct investment (FDI) in India. Mauritius is the largest source of FDI into India, accounting for around 30% of the total FDI inflow. The agreement has made it easier and more attractive for foreign investors to invest in India by providing tax benefits and certainty.

In conclusion, the Mauritius Agreement has played a significant role in promoting cross-border investments and doing business between India and Mauritius. While it has been criticized in the past for facilitating round-tripping of Indian funds, the LOB clause has addressed these concerns and strengthened the agreement. The Mauritius Agreement remains an important tool for promoting FDI in India and fostering economic growth.