India-S'pore tax treaty: anomalies need to be dealt with

THESE are taxing times indeed! The global shift on clamping down on base erosion/profit shifting has the recently amended India-Mauritius tax treaty to add to its list. These amendments have created some anomalies in the India-Singapore tax treaty as well. I will deal with these a little later.

For the last 30 years or so, Mauritius has had a fairy-tale tax treaty with India. It exempted investors from capital gains tax when they invested in shares of Indian companies through Mauritius. Like Singapore, Mauritius does not tax capital gains on the sale of shares. After 1991, when India opened up its economy, Mauritius played a very important role in providing a platform for foreign investment to India.

It allayed the concerns of many investors who feared double taxation and lack of credit availability as a result of a difference in source rules of taxation in India and jurisdictions such as the US. The treaty went through its ups and downs, being challenged in courts in India, but was upheld by the Supreme Court of India in a landmark decision.