India and Mauritius amend Double Taxation Avoidance Agreement to introduce Principal Purpose Test and deny treaty benefits in abuse cases.
India-Mauritius DTAA Amended to Counter Treaty Abuse
The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has been amended to curtail treaty shopping and tax avoidance through shell entities. The updated agreement replaces the preamble and introduces a Principal Purpose Test (PPT) under Article 27B to deny treaty benefits where one of the principal purposes of an arrangement is to obtain such benefits.
The amendment aligns with India's ongoing alignment with OECD's BEPS (Base Erosion and Profit Shifting) standards. The PPT clause allows revenue authorities to deny relief under the treaty where the structure lacks commercial substance or is primarily driven by tax motives. The changes reinforce provisions introduced in the 2016 protocol, which eliminated capital gains tax exemption for Indian assets held via Mauritius.
Corporate and tax practitioners must now assess foreign investment structures routed through Mauritius for treaty eligibility. The ruling mandates documentary diligence and substance-over-form evaluations to justify treaty benefits. Tax authorities are expected to intensify scrutiny of round-tripping and conduit arrangements.
Citations
- Double Taxation Avoidance Agreement with Mauritius, art 27B
