To further ring-fence its jurisdiction from any attempts of round-tripping and money laundering activities, Mauritius has agreed to include a ‘limitation of benefits (LOB)’ clause in its revised tax treaty with India.
While specific details of this clause in the India-Mauritius tax treaty are being ironed out, LoB clauses are typically aimed at preventing ‘treaty shopping’ or inappropriate use of tax pacts by third-country investors.
The LOB clause limits treaty benefits to those who meet certain conditions including those related to business, residency and investment commitments of the entity seeking benefit of a Double Taxation Avoidance Agreement (DTAA).
‘Mauritius and India have agreed on the principle of including a limitation of benefits (LOB) clause in the treaty,’ the island nation’s Financial Services Commission (FSC) chairman Marc Hein said.
FSC is Mauritius’ integrated regulator for global business companies and non-banking financial services sector.
- ‘This LOB clause will have the effect of bringing even more substance to companies which want to be tax resident in Mauritius,’ said Hein, who was here to participate in an international taxation conference.
He added that
- ‘there is already a mechanism to prevent misuse and the further obligations should alleviate the fears of the Indian Authorities’.
While a DTAA is already in place between two countries, it is being revised amid concerns that the Indian Ocean nation was being used for round-tripping of funds to and from India, although Mauritius has always maintained that there have been no concrete evidence of any such misuse.
The two countries had signed this DTAA in 1982 when late Indira Gandhi was India’s Prime Minister and was part of various steps initiated by the two countries at that time for strengthening the flow of investments to and from Mauritius.
While Mauritius has traditionally been one of the biggest source of FDI (foreign direct investment) into India, the flow has slowed in recent years.
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