The Mauritius route is a channel used by foreign investors to invest in India. Mauritius is the main provider of foreign direct investment (FDI) to India and also the preferred jurisdiction for Indian outward investments into Africa. In fact 39.6% of FDI to India came from Mauritius between 2001 and 2011. [1] [2]
Nine of the 10 largest foreign business organizations or companies investing in India (from April 2000–January 2011) are based in Mauritius. [3] List of the ten largest foreign companies investing in India (from April 2000–January 2011) are as follows: [3]
Since the inception of its financial services sector, Mauritius has taken all appropriate steps to safeguard the credibility of its jurisdiction. Mauritius has a stringent legal and regulatory framework recognized by the International Monetary Fund, Financial Stability Board and the Organisation for Economic Co-operation and Development (OECD) to combat money laundering. Furthermore, Mauritius appears on the OECD White List of Jurisdictions that have substantially implemented the internationally agreed tax standards. A recent[ when? ] peer review of Mauritius by the OECD Global Forum, further upholds that Mauritius has all the essential elements in place for an effective exchange of accounting, banking, and ownership/identity information with other countries. Mauritius is also compliant with norms prescribed by International Organization of Securities Commissions, Iowa Interstate Railroad, Financial Action Task Force on Money Laundering and the Basel Committee and has enacted necessary legislation. In this regard, the Mutual Assistance in Criminal and Related Matters Act and the Financial Intelligence and Anti-Money Laundering Act 2002 which provides a framework for exchange of information on money laundering with members of international financial intelligence groups are cases in point. The Asset Recovery Act was promulgated to enlarges the scope for freezing ill-gotten assets. [2]
India has comprehensive Double Taxation Avoidance Agreements (DTAAs) with 88 countries. [4] This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kind of taxpayers.
According to the tax treaty between India and Mauritius, capital gains can only be taxed in Mauritius, the same treaty exist with 16 other countries. Thanks to its low 3% capital gains tax, quality regulatory framework, professional labor, geographical proximity, cultural affinities, and historical ties with India, Mauritius is the most attractive conduit for investments into India. [2] [5]
The DTAC has helped Mauritius in developing its financial services industry while India has benefitted through FDI and job creation.
According to various Indian press, the DTAA are being misused by investors to avoid paying taxes by routing investments through various countries which has tax treaty with India, in particular Mauritius and Singapore, which account for 48% of FDI inflow to India. [6]
The economy of Mauritius is a mixed developing economy based on agriculture, exports, financial services, and tourism. Since the 1980s, the government of Mauritius has sought to diversify the country's economy beyond its dependence on just agriculture, particularly sugar production.
An offshore bank is a bank that is operated and regulated under international banking license, which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale can be referred to as offshore financial centres. OFCs often also levy little or no corporation tax and/or personal income and high direct taxes such as duty, making the cost of living high.
A tax treaty, also called double tax agreement (DTA) or double tax avoidance agreement (DTAA), is an agreement between two countries to avoid or mitigate double taxation. Such treaties may cover a range of taxes including income taxes, inheritance taxes, value added taxes, or other taxes. Besides bilateral treaties, multilateral treaties are also in place. For example, European Union (EU) countries are parties to a multilateral agreement with respect to value added taxes under auspices of the EU, while a joint treaty on mutual administrative assistance of the Council of Europe and the Organisation for Economic Co-operation and Development (OECD) is open to all countries. Tax treaties tend to reduce taxes of one treaty country for residents of the other treaty country to reduce double taxation of the same income.
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes. Tax avoidance should not be confused with tax evasion, which is illegal. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that intend to subvert a state's tax system.
Double taxation is the levying of tax by two or more jurisdictions on the same income, asset, or financial transaction.
Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are used to pay less tax in many countries by large and small-scale investors. Poorly regulated offshore domiciles have served historically as havens for tax evasion, money laundering, or to conceal or protect illegally acquired money from law enforcement in the investor's country. However, the modern, well-regulated offshore centres allow legitimate investors to take advantage of higher rates of return or lower rates of tax on that return offered by operating via such domiciles. The advantage to offshore investment is that such operations are both legal and less costly than those offered in the investor's country—or "onshore".
International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of their income taxation in some manner territorially or provide for offsets to taxation relating to extraterritorial income. The manner of limitation generally takes the form of a territorial, residence-based, or exclusionary system. Some governments have attempted to mitigate the differing limitations of each of these three broad systems by enacting a hybrid system with characteristics of two or more.
Taxes in India are levied by the Central Government and the State Governments by virtue of powers conferred to them from the Constitution of India. Some minor taxes are also levied by the local authorities such as the Municipality.
Taxation in the British Virgin Islands is relatively simple by comparative standards; photocopies of all of the tax laws of the British Virgin Islands (BVI) would together amount to about 200 pages of paper.
Exchange of Information is an umbrella term which refers to international co-operation in the field of taxation through the exchange of information on taxpayers between tax authorities.
A tax haven is a term, often used pejoratively, to describe a place with very low tax rates for non-domiciled investors, even if the official rates may be higher.
An international investment agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments. Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory. IIAs further define procedures for the resolution of disputes should these commitments not be met. The most common types of IIAs are bilateral investment treaties (BITs) and preferential trade and investment agreements (PTIAs). International taxation agreements and double taxation treaties (DTTs) are also considered IIAs, as taxation commonly has an important impact on foreign investment.
An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy."
In India, black money is funds earned on the black market, on which income and other taxes have not been paid. Also, the unaccounted money that is concealed from the tax administrator is called black money. The black money is accumulated by the criminals, smugglers, and tax-evaders. Around ₹22,000 crores are supposed to have been accumulated by the criminals for vested interests, though writ petitions in the supreme court estimate this to be even larger, at ₹900 lakh crores.
The Income Tax Department is a government agency undertaking direct tax collection of the government of India. It functions under the Department of Revenue of the Ministry of Finance. The Income Tax Department is headed by the apex body Central Board of Direct Taxes (CBDT). The main responsibility of the Income Tax Department is to enforce various direct tax laws, most important among these being the Income-tax Act, 1961, to collect revenue for the government of India. It also enforces other economic laws such as the Benami Transactions (Prohibition) Act, 1988, and the Black Money Act, 2015.
The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding financial accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Development (OECD) developed in 2014.
Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher-tax jurisdictions to lower-tax jurisdictions or no-tax locations where there is little or no economic activity, thus "eroding" the "tax-base" of the higher-tax jurisdictions using deductible payments such as interest or royalties. For the government, the tax base is a company's income or profit. Tax is levied as a percentage on this income/profit. When that income / profit is transferred to a tax haven, the tax base is eroded and the company does not pay taxes to the country that is generating the income. As a result, tax revenues are reduced and the country is disadvantaged. The Organisation for Economic Co-operation and Development (OECD) define BEPS strategies as "exploiting gaps and mismatches in tax rules". While some of the tactics are illegal, the majority are not. Because businesses that operate across borders can utilize BEPS to obtain a competitive edge over domestic businesses, it affects the righteousness and integrity of tax systems. Furthermore, it lessens deliberate compliance, when taxpayers notice multinationals legally avoiding corporate income taxes. Because developing nations rely more heavily on corporate income tax, they are disproportionately affected by BEPS.
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans". FDI is the sum of equity capital, long-term capital, and short-term capital as shown in the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. Stock of FDI is the net cumulative FDI for any given period. Direct investment excludes investment through purchase of shares.
The OECD G20 Base Erosion and Profit Shifting Project is an OECD/G20 project to set up an international framework to combat tax avoidance by multinational enterprises ("MNEs") using base erosion and profit shifting tools. The project, led by the OECD's Committee on Fiscal Affairs, began in 2013 with OECD and G20 countries, in a context of financial crisis and tax affairs. Currently, after the BEPS report has been delivered in 2015, the project is now in its implementation phase, 116 countries are involved including a majority of developing countries. During two years, the package was developed by participating members on an equal footing, as well as widespread consultations with jurisdictions and stakeholders, including business, academics and civil society. And since 2016, the OECD/G20 Inclusive Framework on BEPS provides for its 140 members a platform to work on an equal footing to tackle BEPS, including through peer review of the BEPS minimum standards, and monitoring of implementation of the BEPS package as a whole.
The INX Media case refers to an ongoing high-profile money laundering investigation in India. It involves allegation of irregularities in foreign exchange clearances given to INX Media group for receiving overseas investment in 2007. P. Chidambaram was union finance minister at the time. His son Karti Chidambaram has been implicated by the investigating agencies.
