The India-Mauritius treaty has been kept out.
Hence, it is unlikely that the India-Mauritius tax treaty will get modified by the MLI unless there is a change in the Mauritius position in the future. As of now, one may wonder as to how the BEPS standards will be implemented in the India-Mauritius treaty. The MLI positions adopted by countries are still provisional and the same may undergo a change either at the ratification stage or anytime in the future. In an official statement, Mauritius expressed that the tax treaties which are not covered by the MLI will be subject to a bilateral discussion with the respective treaty partners by the end of 2018.
The India-Mauritius treaty was recently amended in 2016, to provide for source taxation of capital gains as a result transfer of Indian shares by a Mauritius resident, would now be taxable in India. However, investments made till March 2017 are grandfathered from such taxation. Such investments are also protected from the General Anti-Avoidance Rule (GAAR) in India. The PPT rule which is a mandatory standard, once adopted by both countries, can have a potential impact on curtailing the treaty benefit to the grandfathered investments depending on facts of the case.
The fact that Mauritius has not notified the India-Mauritius treaty for amendment under the MLI, may indicate on Mauritius’ intention to continue with the benefits of the treaty to grandfathered investments.
However, Mauritius is committed to implementing BEPS minimum standards and hence, it can be expected that the PPT rule will be included in the India-Mauritius treaty. Having said that, one may hope that during the bilateral negotiations, the countries will continue to grandfather investments made before March 2017. Similar considerations arise under the India-Singapore treaty which has had similar provisions as the India-Mauritius treaty.
It may be noted that both India and Singapore have notified the India-Singapore treaty and the PPT rule is likely to be added in the treaty.
This raises serious concerns about the availability of treaty benefits to grandfathered investments, which will be subject to the PPT rule. This will be in addition to the existing LoB provisions in the India-Singapore treaty. The MLI framework is presently provisional and we will have to wait and watch for the posture adopted by the countries on the issues mentioned above. Timely clarity from governments will be necessary to boost the confidence of foreign investors.
The present India-Mauritius treaty largely complies with the minimum standard prescribed for the dispute resolution mechanism. For the outliers, like access to MAP in either of the contracting states or to implement a bilateral notification process and MAP access in transfer pricing cases, the same need to be adopted in the treaty before ratification of MLI or through bilateral negotiations.
Thus, all action is not yet over for the India-Mauritius treaty. Investors may wait and watch what course the two countries will adopt to upgrade its tax treaty to BEPS standards and what impact it will have on existing and future holding structures.