Mauritius-India agreed to include Limitation of Benefits clause in revised Tax Treaty

Mauritius and India agreed on 9 December 2013 to include Limitation of Benefit (LoB) clause in the revised tax treaty. This was revealed by the Mauritius Financial Services Commission (FSC) Chairman Marc Hein. He was in Mumbai to participate in an international taxation conference.

While details of this clause in the India-Mauritius tax treaty are being worked out, LoB clauses aim to prevent treaty shopping or inappropriate use of tax agreements by third-country investors.

Treaty benefits are limited by this clause to those who meet certain conditions, including those concerned with business, residency and investment commitments of anyone seeking benefit of a Double Taxation Avoidance Agreement (DTAA).

Financial Services Commission (FSC)
The FSC is Mauritius’ integrated regulator for global business companies and non-banking financial services sector. Marc Hein is its present chairman.

Double Taxation Avoidance Agreement (DTAA)
It is a tax agreement that India has with 65 nations. It means those Non-resident Indians (NRIs) who are the residents of the country in which they stay and pay income taxes in that country are eligible to pay a lower tax on their incomes earned in India in the same financial year.

For example many Indian companies have offices in Mauritius and they route their investments to India through that country because the general taxation rates are lower than compared to India. This means India gets to lose tax revenue as DTAA ensures that these investments are taxed at much lower rates than investments of the same quantity but not routed through Mauritius or any other nation with which India has a DTAA. This is called Round tripping.

This also leads to conditions conducive to money laundering. Money laundering is when the sources of money are not known. So it may be money earned through corrupt means and money meant for funding terrorist activities. Such money is called dirty money.

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