The amendment to the Double Taxation Avoidance Treaty with Mauritius will push offshore fund management companies to set up shop in India, said Aarthi Sivanandh, a partner at JSA, a leading law firm in the country.
“Under the new safe harbour rules, offshore funds’ gains will be taxed as capital gains than as business income. This will require them to reconfigure their plans,’’ she said.
Capital gainsUnder the amended treaty signed with the island nation, India gets the right to tax capital gains on investments routed through Mauritius. The amendment to the 1983 treaty will come into force from April 1, 2017.
Based on available information, it was, however, unclear if the amendment covered investments made using hybrid securities, Ms. Sivanandh said.
“Although the actual language of the protocol has not been made available, the statement indicates its applicability only to shares. Therefore, the extent of its applicability to hybrid instruments is still open, and they could technically walk away with residence-based taxation protections.’’
