Budget Analysis: More scrutiny for Mauritius investors says Sanjay Kapadia

In the Budget speech presented by the Finance Minister, P Chidambaram, there were some indications made with respect to taxes via the Mauritius route.

In an interview to CNBC-TV18, Sanjay Kapadia, Tax Partner, E&Y shares his views on tax residency certificate (TRC). Below is the verbatim transcript of his interview Q: Your thoughts on what was set out with respect to this tax residency certificate (TRC) and whether as somebody else pointed out this will come in with retrospective effect for taxes routed via Mauritius? A: The changes that have been made is that TRC which is currently the law laid down by the Central Board of Direct Taxes (CBDT), also we have Supreme Court rulings in the case of Azadi Bachao. We also had some of those principles emanating from the Vodafone ruling. Now the changes that have been suggested or proposed are that the TRC is a necessary criterion for claiming the tax treaty but that will not be sufficient. That means, the tax office can now go and undertake detailed scrutiny of the investments that are flowing from Mauritius. Therefore the Mauritius investors would be subject to greater scrutiny. In effect it is diluting what the earlier circular said and what Supreme Court said. The law is now being proposed. There is nothing in the fineprint that mentions about the retrospective or otherwise the prospective nature of the amendment that is sought to be carried out. But it is a procedure and the tax authorities will now be following that. So, it could have some retrospective impact also when they actually look at the transactions.