The comments of the former Finance Minister of Mauritius have sparked alarm regarding the tax treaty negotiations between India and Mauritius.
The former FM Rama Sithanen says he’s seen the new protocol and in it Mauritius has given up the right to tax capital gains. If this is true it would have a significant impact of foreign investors investing in India via Mauritius.
The former FM’s comments have raised doubts about whether treaty amendments include a Limitation of Benefits clause as well as a change in Article 13 – that takes away the Mauritius’ right to tax capital gains. To clarify matters CNBC TV18’s Menaka Doshi talks to senior tax lawyer Nishith Desai, who is also acting as counsel to the Mauritius Government in these tax treaty re-negotiations
Below is the transcript of Nishith Desai’s interview with CNBC-TV18's Menaka Doshi.
Q: Let me start by asking you whether the negotiations between the two countries are complete or not because we have heard from different Mauritius ministers and they seem to be indicating that the protocol is final and now just needs to be ratified by the cabinets of both governments?
A: My understanding is that they are not fully complete at this point in time. Discussions are still underway. I am right now in Denver, Colorado, so please pardon me, I am not completely updated, but that is what my understanding is.
Q: But since you been a counsel to the Mauritius government on these renegotiations I am sure you can tell me whether the amendments to the treaty are limited to the inclusion of a limitation of benefits clause? Is that the only change that is going to occur or are there changes to Article 13 as well in which Mauritius gives up its right to tax capital gains?
A: You will appreciate that I cannot comment. As a lawyer, I am bound by confidentiality and as you may know the protocol needs to be ratified by the cabinet once it is finalised. Only then it is made public by the government and then I can make any comment.
Q: You understand the anxiety in India with regards to these potential changes especially since the former Finance Minister of Mauritius seems to have indicated that he has seen the protocol and in fact there is a change in Article 13 and that Mauritius has given up its right to tax capital gain?
A: Once again, I cannot breach my oath of confidentiality and you will pardon me for not being able to answer the question on that particular point. I cannot talk about content at this point in time.
Q: Could you give us an indication as to how foreign investors investing into India via the Mauritius route - whether they are likely to be impacted in any big way or not?
A: At this point in time, it would be premature to say because discussions are still not 100 percent complete and therefore, I would like to be excused on that point.
Q: Do they have any reason to be worried, foreign investors coming to India via the Mauritius route?
A: My understanding is that Mauritius government or some communiqué must be coming from Mauritius very soon and then we will be in a better position to speak about it.
Q: Given the fact that you are a veteran expert in this country on taxation and that you have many foreign investors as clients, would you say that foreign investors ought to be concerned or worried about the potential changes to the treaty without giving away what those changes are?
A: I would say that any time treaty conversation happens people get little anxious. It is very natural. I think at this point in time it would not be proper for me to comment.
Q: When do you expect the changes to the treaty being finalised because I was under the impression the protocol has been finalised. You have just told me that it would take a few more days to be finalised and there could be a Mauritius communiqué out. Do you have any sense of what the timeline could be?
A: It all depends. I cannot say exactly because when discussions are there, there may be points that need to be discussed. It may take one day, it may take 10 days or it may take one month. To give that kind of predictability at this point in time for me is little difficult.
Q: Should we expect big changes in the re-negotiations? Don't tell me what the changes are. Can you tell me whether they are big changes or not?
A: That can reflect on my comments on the content and that is why it would be little inappropriate on my part. I am sure government of Mauritius or some authority from that side should be coming out with some communiqué very soon and that will also give some indication to the investors and also to you about what is happening then it will be more official.
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