India-Mauritius Treaty Trails Behind The BEPS Movement
By Team Legistify / 2017-07-12

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Immense changes are happening across the globe to implement the Organisation for Economic Co-operation and Development’s (OECD) Multilateral Instrument (MLI) with full force. The MLI is a single, labyrinthine instrument to implement tax treaty-related measures to prevent Base Erosion and Profit Shifting (BEPS) in the existing treaties between participating countries. On June 7, 2017, India, along with around 67 other jurisdictions, signed the MLI at the first joint signing ceremony, held in Paris, which is expected to amend over 1,100 tax treaties. This event marks an important milestone in international taxation, bringing jurisdictions a step closer to achieving tax certainty and tackling base erosion worldwide.

Furthering its commitment to the OECD and G20 nations’ BEPS project, India has notified that all 93 of its bilateral tax treaties – including Mauritius and Singapore – will be covered by the MLI, and subject to the same treatment as chosen for implementation of the MLI provisions. Notably, India has adopted the minimum standards of the Principal Purpose Test (PPT), which operates to deny treaty benefits in abusive cases and dispute resolution measures. India is also seen as adopting, inter alia, changes to the permanent establishment (PE) rule as proposed by the OECD. However, changes to a tax treaty are subject to the positions adopted by the other treaty partner under the MLI.

On July 5, 2017, Mauritius also signed the MLI. Its provisional position indicates that the country has opted for the PPT, and it intends to adopt a limitation on benefits (LoB) provision through bilateral negotiations. Further, Mauritius has also adopted the mandatory provisions of dispute resolution through a Mutual Agreement Procedure (MAP).

With respect to optional standards pertaining to artificial avoidance of permanent establishment and hybrid mismatches, Mauritius seems to be shying away from applying the same to its notified tax treaties.

Mauritius notified 23 of its tax treaties for modification by the MLI.

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