Licences of Entities Would Be Revoked If TheyzSource Funds From India –Mauritius:

The Financial Services Commission of Mauritius has imposed a
stringent set of conditions on Mauritius-based companies investing in India in a
bid to allay fears about round-tripping of funds. The Mauritian government has
also warned that licences of entities investing in India would be revoked if
they source funds from India. The move provides a new turn to the lingering
debate over allegations of Indian corporates using the Mauritius route to escape
capital gains tax. Mauritius is the top source of foreign direct investment (FDI)
flowing into India. During the first seven months of the current financial year,
nearly $8 billion of the $18 billion FDI flowing into India came from Mauritius.
An annual audit of Mauritius-based entities investing in India has been made
mandatory, said Milan J N Meetrabhan, chief executive of the Financial Services
Commission of Mauritius. The Indian side has been apprised of the steps taken to
check round-tripping, and Mauritius hopes that this will take care of the
concerns about tax evasion.

The move is significant since it comes at a time when the
government is planning to review all double taxation avoidance treaties to plug
loopholes. Also, the direct taxes code which is to replace the I-T Act next year
proposes a number of changes in the country’s tax laws, including some that will
nix the capital gains tax exemption enjoyed by investing through havens.

A Mauritian team headed by Dr Rama Sithanen, Vice Prime
Minister and Minister of Finance and Economic Empowerment, met FM Pranab
Mukherjee. Mr. Sithanen said that FDI was flowing into India through Mauritius
not because of the tax benefit only. There are a number of other countries with
more attractive tax treaties with India, but so much investment is not flowing
through them. Mauritius is preferred because we have a transparent regulatory
system and a sound financial sector, he emphasised.