Tax Hotline
November 11, 2008
"Mauritius is OKAY” says FIPB
After rejecting Foreign Direct Investment (“FDI”) proposals from Mauritius for several months on the grounds of “treaty shopping” by following the Department of Revenue’s (“DoR”) reservations, the Foreign Investment Promotion Board (“FIPB”) has finally laid to rest the controversy by rejecting the argument of treaty shopping, put forth strongly by the DoR for rejecting such FDI proposals.
This departure of the FIPB from the reservations cast by the DoR is evident from the clearance of a number of FDI proposals from Mauritius at its meeting held on October 24, 2008.1
The concept of ‘treaty shopping’ involves a case wherein a resident of a third country seeks to obtain the benefit of a double tax agreement between two other countries by interposing a company or other entity in one of the treaty countries.
Despite the fact that FDI from Mauritius accounts for nearly 43% of the total FDI into India2, FIPB, in the recent past, had rejected several of such investment proposals on the grounds of treaty shopping and other similar objections as were being advocated by the DoR.
The arguments put forth by the DoR were contradictory to the ‘circular’ issued by the Government of India, which clearly states that any company which has obtained a Mauritian certificate of residence would be entitled to the benefits of the India-Mauritius Double Taxation Avoidance Agreement (“Treaty”).3 The Supreme Court of India has also upheld the sanctity of the Treaty and the validity of investments made by companies resident in Mauritius into India.4 Further, it also observed that there was no provision within the Treaty which excluded a third-country resident from setting up intermediate vehicles for availing Treaty benefits. The FIPB has rightly pointed out that the tax department can investigate such issues from a tax angle. This is a step in the right direction which clearly demonstrates that regulatory approvals for investment into India are separate from taxation issues. While FIPB may decide whether to permit investment into India based on the foreign investment policy, tax issues should not affect such decisions, and should be left open for the tax department to investigate into and litigate.
In a market already battered by turbulence and uncertainty, the new stance taken by the FIPB should provide significant relief to the India-focused investing community.
- Vivek Mimani & Parul Jain
Disclaimer
The contents of this hotline should
not be construed as legal opinion. View detailed disclaimer.
This hotline does not constitute a
legal opinion and may contain information generated
using various artificial intelligence (AI) tools or
assistants, including but not limited to our in-house
tool,
NaiDA. We strive to ensure the highest quality and
accuracy of our content and services. Nishith Desai
Associates is committed to the responsible use of AI
tools, maintaining client confidentiality, and adhering
to strict data protection policies to safeguard your
information.
This hotline provides general information
existing at the time of preparation. The Hotline is
intended as a news update and Nishith Desai Associates
neither assumes nor accepts any responsibility for any
loss arising to any person acting or refraining from
acting as a result of any material contained in this
Hotline. It is recommended that professional advice
be taken based on the specific facts and circumstances.
This hotline does not substitute the need to refer to
the original pronouncements.
This is not a spam email. You have
received this email because you have either requested
for it or someone must have suggested your name. Since
India has no anti-spamming law, we refer to the US directive,
which states that a email cannot be considered spam
if it contains the sender's contact information, which
this email does. In case this email doesn't concern
you, please
unsubscribe from mailing list.
|