On 10 May 2016, India and Mauritius signed a Protocol to amend the India-Mauritius Double Taxation Avoidance Agreement (DTAA) of 1982. The Central Board of Direct Taxes (CBDT), the apex administrative body of direct taxes in India, had issued a Press Release dated 10 May 2016 on the Protocol amending the DTAA between India and Mauritius.
The Ministry of Finance (Department of Revenue) vide Notification No. 68/2016/F. No. 500/3/2012-FTD-II dated 10th August 2016 have notified the protocol bring the same into effect. Further, the effective entry date has been kept as 19th July 2016, i.e., the protocol will come into effect from 19th July 2016.
The key features of the protocol are highlighted as under:
Ø Service PE: The protocol introduces the concept of Service PE, wherein the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) for a period or periods aggregating more than 90 days within any 12 month period shall constitute as a permanent establishment in the state in which the services are rendered. [Effective date 1st April 2017];
Ø Interest: The protocol caps the maximum withholding rate to 7.5 per cent of the gross amount of interest in the source state. Additionally, the protocol also provides for exemption of interest derived and beneficially owned by any bank resident of the other Contracting State carrying on bona fide banking business, only if the interest arising for debt-claims existing on or before 31st March 2017. [Effective date 1st April 2017];
Ø Fee for technical service: A new Article 12A has been inserted in the existing DTAA to provide for chargeability of Fee for technical service. The protocol; provides for a maximum withholding under the DTAA, by the source state, at 10 per cent of the gross amount of the fee for technical service [Effective date 1st April 2017];
Ø Capital Gains: The protocol provides for source state taxation rights towards income arising from the alienation of shares. The present DTAA does not levy tax on sale of shares of an Indian company held by a Mauritian entity. As a result of the protocol, any gain derived by a Mauritian entity form sale of shares in an Indian Company shall be taxable in India. Further, the protocol also provides for a reduced rate of tax at the rate of 50 per cent of the existing rates for capital gains resulting from alienation of shares between the period 1st April 2017 to 31st March 2019 [Effective date 1st April 2017];
The benefits of the aforementioned article shall not be available to a shell/conduit company. For the purpose of this protocol, a shell/conduit company shall mean a company whose expenditure on operations in its resident state is less than MUR 1,500,000 or INR 2,700,000 in the immediately preceding 12 months in which the gains arise [Effective date 1st April 2017];
Ø Other Income: The protocol also provides for incomes not dealt in the foregoing articles of the DTAA, shall be taxable in the source state (New Para (3) under Article 22) [Effective date 1st April 2017];
Ø Exchange of information: The protocol provides for exchange of information, wherever required, between the Government of India and Government of Mauritius [Article 26] [Effective from the date of entry of the protocol];
Ø Assistance in Collection of Taxes: The protocol provides for assistance in collection of taxes on revenue claims raised by the authorities of one contracting state with the relevant authorities of the other contracting states [Article 26A] [Effective from the date of entry of the protocol].