The India-Mauritius Double Taxation Avoidance Agreement has been amended to introduce a Principal Purpose Test, denying tax benefits in cases of treaty abuse and artificial structures.
India-Mauritius DTAA Updated to Curb Treaty Abuse
The Government of India has amended the Double Taxation Avoidance Agreement (DTAA) with Mauritius to curb misuse of treaty benefits through artificial routing of investments. The revised agreement introduces a Principal Purpose Test (PPT) under new Article 27B, which denies treaty benefits if one of the principal purposes of an arrangement is to obtain such benefits.
The amendment replaces the original preamble with a preamble emphasizing the prevention of fiscal evasion and the exchange of information. The PPT clause aligns India’s tax treaties with the OECD’s BEPS (Base Erosion and Profit Shifting) standards, targeting entities established solely for treaty shopping without substantive business operations.
This development marks a shift towards stricter scrutiny of offshore investment structures. Tax practitioners must now evaluate entity-level justifications for treaty benefits and document commercial substance. The change will particularly impact investments routed through Mauritius for capital gains and dividend stripping. Advance tax planning must incorporate country-by-country reporting and economic substance requirements.
Citations
- India-Mauritius DTAA, Article 27B (PPT)
