The India-Mauritius Double Taxation Avoidance Agreement (DTAA) has been amended to introduce a Principal Purpose Test (PPT) under Article 27B, denying treaty benefits in cases of treaty abuse or shopping. The preamble has also been revised to reflect anti-abuse intent.
India-Mauritius DTAA Amended to Combat Treaty Shopping
The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has been amended to curb treaty abuse and prevent tax evasion through shell entities. The updated agreement replaces the preamble and introduces a Principal Purpose Test (PPT) under Article 27B, which empowers tax authorities to deny treaty benefits where one of the principal purposes of an arrangement is to obtain such benefits inappropriately.
The amendment aligns with India’s ongoing efforts to comply with OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, particularly Action 6 on preventing treaty abuse. The revised preamble now explicitly states that the objective of the treaty is to promote cross-border trade and investment while preventing revenue loss due to artificial structures.
"The inclusion of PPT strengthens India’s toolkit against aggressive tax planning,"said a senior official from the Central Board of Direct Taxes.
For practitioners, this means heightened scrutiny of investment routes via Mauritius, particularly in cases involving conduit entities or layered structures. Transactions must now be evaluated not only for technical compliance but also for substance and commercial rationale. The changes reflect a global shift toward substance-over-form in international taxation and will impact fund structuring and exit planning for foreign investors.
Citations
- Article 27B, India-Mauritius DTAA
