From UPSC perspective, the following things are important :
Prelims level : Mauritius leaks
Mains level : FDI routes in India
- According to the recently released data by the International Consortium of Investigative Journalists (ICIJ), as many as 50 entities, or one-fourth of those disclosed in the Mauritius leaks, had India as their only country or one of the countries of activity.
- The Double Taxation Avoidance Agreement (DTAA) was signed between India and Mauritius in 1982.
- Under this,any entity could apply for tax residency and pay zero capital gains tax.
- This became the principal reason why Mauritius emerged as a top channel for investments being routed into India.
- Over 200,000 emails, contracts and bank statements leaked from Mauritius show how it was used by corporates to facilitate partnerships with multinationals.
- This was done without paying any capital gains tax, remit profits as Foreign Direct Investment (FDI) to India.
Why is the Mauritius connection important?
- In 2016, India amended its Double Taxation Avoidance Agreement (DTAA) with Mauritius, and the new provisions — capital gains tax, instance — are now fully applicable.
- Almost a third of India’s FDI came through Mauritius.
- There was strong resistance from Mauritius. They were benefited in the sense that lots of support and infrastructure like accounting firms and firms that set up companies and get income from that.