The principal attraction of the India-Mauritius tax treaty is the complete exemption it affords from Indian capital gains tax on the sale by a Mauritian company of its shares in an Indian company. When the capital gains are received by the Mauritian company no Mauritian tax applies to them so the investor can invest in India on a tax free basis.
For Indian companies investing outside India, Mauritius, with its network of treaties, is an ideal platform from which to access the region. For investment into China, for example, the Mauritian treaty route is recognized as being very tax efficient. The Mauritian treaty with Singapore is also very advantageous. Mauritius also has good treaties with a number of European countries, and can be a tax efficient exit route from Europe. Finally, its treaty network with a number of African countries reinforces its position as a bridge between Asia and Africa.
The tax sparing clause in the India-Mauritius treaty, combined with the underlying tax credit system in Mauritius' domestic law, allows an Indian investor, which has established a Mauritian holding company to hold its international investments, to carry through maximum credits for foreign tax paid, and deemed to have been paid, to set against Indian tax payable on the profits earned from the foreign holdings.
There has been considerable focus recently on the use of the Mauritian route to India in the context of the proposed introduction in India of general anti-avoidance rules ("GAAR"). We are very conscious of the need to ensure that our clients can demonstrate meaningful substance for their activities in Mauritius to justify access to treaty benefits.