United States

Mauritius tax certificate ruled sufficient to claim India treaty benefits

INSIGHT ARTICLE  | 

The Indian High Court has recently ruled that a tax residence certificate issued by the Mauritius tax authority is sufficient to claim certain benefits under the India-Mauritius income tax treaty. Specifically, the capital gain realized from the sale of an Indian company by a Mauritius corporation was found to be exempt from Indian taxation under the treaty even though Mauritius would also not subject the capital gain to taxation. In the case at hand, the Indian Revenue Department had challenged the underlying corporate structure as a clear case of treaty shopping and described the transaction as an attempt to avoid Indian income tax. In a rebuke to the Indian Revenue Department, the High Court acknowledged that many developed nations encourage treaty shopping and regard it as a tax incentive. The High Court then stated, “Once it is accepted that the certificate has been issued by the Mauritian authorities, the validity thereof cannot be questioned by the Indian authorities.”

The future implications of the ruling may be limited. Analysts are speculating that the capital gains exemption under the Indian-Mauritius income tax treaty may be removed in the near future. However, until the provision is removed from the treaty, those investors looking for a tax advantaged investment vehicle for Indian equities should consult their advisors about incorporating a Mauritius holding company. 

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