MNCs change route; flock to Singapore to save taxes

More and more MNCs, with Indian subsidiaries, are now shifting their base from Mauritius to another island nation- Singapore in order to save taxes. So is Singapore now taking over as the new tax haven? CNBC-TV18’s Aastha Maheshwari finds out.

This tiny island tucked in the Indian Ocean has so far been the corporate's favourite tax haven – Mauritius, is in fact one of the biggest sources of foreign direct investment (FDI) coming into India. But all that's set to change. With the Indian government considering proposals to remove tax benefits from Mauritius, global companies are now considering investing through Singapore instead.
 
CNBC TV 18 learns that some of these companies are Standard Life, global partner for the largest private life insurance company in India- HDFC ST Life. Smithkline and Castleton, part of the global holding co of GSK Pharma and GSK Consumer Dow Agri Sciences, the holding company of Dow Chemicals in India.
And even some private equity firms like 3i, which along with others such as CX Partners and Edelweiss Capital had started this trend in 2012.

But what makes Singapore click?

Gautam Mehra, executive director, PwC says "The main reason for people to shift to Singapore is the uncertainty over General Anti Avoidance Rule (GAAR). People are not about tax rates, what will be taxed, how much investors want surety on parameters that are taxable, which due to GAAR remains a question in Maritious. While in Singapore, the limitation of benefit treaty is a positive. It allows companies who are two years in existence in Singapore and with expenditure more than 200000 Singapaore dollars every year to get capital gains exemption." Mauritius, however, is not giving up yet.
The island nation is trying to make the investment process more transparent, under which companies are asked to provide office and bank account details in order to prove the entity is for real and not just a front to save taxes. And Mauritius is also in talks with the Indian government to have a benefit treaty, inline with the Singapore treaty to escape the GAAR burden. But till these uncertainties are sorted out..unless the issues are resolved it looks like taxing times for mauritious will continue for some time.