India & Mauritius signed a protocol amending the Double Taxation Avoidance Agreement (DTAA)

Posted 15 Apr 2024

2 min read

Amendment included Principal Purpose Test (PPT) to avail tax benefits under the DTAA to plug the abuse of treaty for tax evasion and avoidance.
- PPT lays out the condition that the tax benefits under the treaty will not be applicable if obtaining that duty benefit was the principal purpose of any transaction or arrangement.
- Protocol to amend DTAA is aimed at making it compliant with Base Erosion and Profit Shifting (BEPS) Minimum Standards.

Refers to tax planning strategies that exploit gaps and mismatches in tax rules for tax avoidance by shifting profits from higher tax to lower tax jurisdictions.
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS aims to update international tax rules and lessen opportunity for tax avoidance by multinational enterprises.
- India signed the convention in 2017.

DTAA is an agreement between two countries/territories with an objective to avoid double taxation on same declared asset in two different countries/territories.
- DTAA between India and Mauritius was first signed in 1982 and amended in 2016.

Significance of DTAA
- Promotion of cross-border investment by reducing tax burden on foreign investors.
- Equitable allocation of right to tax between the ‘source’ and ‘residence’ countries.
- Provides legal certainty on taxing international income.

Issues associated with DTAA
- Treaty Shopping: Takes place when residents of a country, which is not a party to the DTAA, take advantage of the provisions.
- Double non-taxation: Abuse of DTAA to avoid paying taxes in both countries.
- Differential interpretations of tax treaties leading to protracted litigations.

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