India and Mauritius amend Double Taxation Avoidance Agreement to curb treaty shopping using Principal Purpose Test in new Article 27B.
India-Mauritius DTAA Updated to Combat Treaty Abuse
The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has been amended to prevent abusive routing of investments through Mauritius solely to exploit treaty benefits. The revised protocol replaces the preamble and introduces a Principal Purpose Test (PPT) under new Article 27B.
"The principal purpose of an arrangement or transaction is not the obtaining of treaty benefits,"states the PPT clause, empowering tax authorities to deny relief if one of the main objectives is tax avoidance. The amendment aligns with India’s broader anti-treaty shopping framework introduced after the Base Erosion and Profit Shifting (BEPS) Action Plan recommendations.
Practitioners must reassess foreign investment structuring, particularly in PE and VC funds routed via Mauritius. While grandfathering rules may apply for existing arrangements, new structures lacking commercial substance risk disallowance under the PPT. Advance pricing and residency verification will gain prominence in cross-border audit strategies.
Citations
- India-Mauritius DTAA, Art 27B (Principal Purpose Test)
