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An assessment of the consequences and implications of the

recent protocol on the DTAA between India and Mauritius on

the global business sector and the national economy

The purpose of this document is three-fold


to analyse the protocol signed between India and Mauritius on 1st July 2015 that
changes comprehensively the Double Taxation Avoidance Agreement (DTAA) between
our two countries;


to evaluate the likely consequences of the new protocol on global business in

particular and the national economy in general;


to provide a synopsis of the views expressed by professionals and operators of the

industry on the protocol;

A. An analysis of the protocol signed between India and Mauritius on 1st

July 2015
1. Background

There has always been a bipartisan approach and a cross party consensus on the position that
Mauritius should take at the negotiating table on the DTAA with India. As a result, all
governments and all ministers of Finance have maintained a consistent, coherent and
sustained stance on this subject. They have always insisted on protecting Article 13 (taxes on
capital gains) and Article 11 (withholding taxes on banks interests).

This has been the position taken by all Ministers of Finance since 1991

Rama Sithanen 1991-1995


Manou Bheenick 1995-1996


Vasant Bunwaree 1996-2000


Paul Brenger 2000-2003


Pravind Jugnauth 2003-2005


Rama Sithanen 2005-2010


Pravind Jugnauth 2010-2011


Xavier- Luc Duval 2011-2014

And also by the present Government until 30th June 2015.

2. The basis of the negotiation from Mauritius perspective

While there has been discussion to review the treaty on a piecemeal basis since the early 90s,
in-depth negotiation to revise comprehensively the treaty commenced in 2007 at the level of
a Joint-Working Group.
Irrespective of the stripes and colours of the Government in office in Mauritius, our
negotiating position has always been underscored by the following considerations:

No change in Article 13 on capital gains tax ;


No change in Article 11 on withholding tax on interest on bank loans;


A grandfathering clause to protect existing structures and investments;


A MFN clause to ensure that our country is not discriminated against in favour of
Indias other treaty partners. India has similar, if not identical, treaties with many
other countries (including Cyprus, Netherlands, Singapore and Kenya) and a change in
the India-Mauritius treaty will affect us adversely if similar changes are not brought to
other treaties that India has.

Against the above considerations, Mauritius has been willing to make the following


A more stringent exchange of information clause as per the OECD model to fight
financial crimes;


A new clause on assistance in the collection of taxes;


A strengthened provision to further curb alleged round tripping;


to give taxing right to India on fees for technical services;


to give taxing right to India on other income;


A reinforced governance and transparency provision to ensure more business purpose

and economic substance;


A bona fide and main purpose clause on Article 11 so that banking transactions are not
structured simply to avail of treaty benefits;


A sharing of taxing right on capital gains through a Limitation of Benefits (LOB) clause
to ensure economic substance.

Companies that meet the LOB clause would be taxed on capital gains in Mauritius while those
that do not satisfy the LOB clause would be charged capital gains in India on disposal of
shares and assets.
The guiding principle has always been to strike a balance between the absolute necessity to
protect, as far as possible, our vital economic and financial interests (keep Articles 11 and 13)
and the overriding need to meet some of the requirements of the Indian side. Negotiation is
always about a balanced outcome where both parties obtain and/or retain some benefits.

3. No crossing of some red lines

Given the considerable importance of the global business sector, no Government of Mauritius
has ever accepted to give up the taxing rights on capital gains solely to India. Nor agreed to
surrender the zero withholding tax on banks interests. Equally no government has ever
consented not to have a grandfathering right to protect existing investments and structures
And also to seek a guarantee that Mauritius will not be discriminated against once the treaty
is reviewed.
As a matter of fact, that position was rightly taken in the draft Protocol submitted by the
Ministerial delegation from Mauritius to the Indian minister of Finance in mid June 2015 in
Delhi. That draft protocol does protect Article 13 on capital gains tax and Article 11 on
withholding tax on banks interests. As expected and in line with our consistent and sustained
historical approach, it makes concession on the exchange of information, on the assistance in
the collection of taxes, on the definition of permanent establishment, on taxing rights for India
on other income, on limitation of benefits, on strengthened governance and transparency
provisions and on a bona fide clause for Article 11 (3). It also covered the grandfathering
rights in a comprehensive manner.
All policy makers would be aware that Article 13 on capital gains has been the bedrock upon
which the global business sector has thrived and expanded in Mauritius. While Article 11 (3)
has been the engine behind the presence of global banks in our country to serve international

4. Why the sudden and radical change in Mauritius negotiating position post mid June

Everybody was flabbergasted when the news of a radical shift in our negotiation position
reached our shores. It is very difficult to understand what could have happened between the
negotiating stance of Government as contained in the draft protocol of mid June 2015 and the
protocol signed on the 1st July 2015.

Why has the negotiating position of Mauritius changed so dramatically between mid
June 2015 when the Government of Mauritius submitted a proposed protocol to its
Indian counterpart and the 1st of July when a completely different protocol was signed
by Mauritius?

Below is a snapshot of the major differences between the proposed protocol submitted by
Mauritius in mid June 2015 and the protocol signed on 1st July 2015 by the two parties.


Article 2 of the Protocol on withholding tax on interest on bank loans: it did not exist in
the mid June 2015 text and is introduced in the 1st July 2015 protocol.
Withholding tax on banks interest increases from 0 % to 7.5 %.
It will severely affect the competitiveness of international banks operating in
The Mauritius Bankers Association has already written to the Minister of Finance to
express its concerns on this amendment;


Article 3 of the Protocol on fees for technical services: it did not exist in the mid-June
2015 and is introduced in the protocol of 1st July 2015.
It gives new taxing right to India on fees for technical services;


Article 4 of the protocol on Capital Gains: it did not exist in the mid June 2015 proposal
and is introduced in the 1st July protocol.
This is the most significant change and it will have important, significant and dire
consequences on global business.
New paragraph 3 (A) of the protocol shifts the right to tax capital gains on disposal of
shares from Mauritius to India as from 1st April 2017.


Article 8 of the protocol on Limitation of Benefits: it existed in the first document.

However the content of the LOB is different in the signed protocol

Mauritius has always suggested a sharing of taxing rights between India and Mauritius
on capital gains through a LOB. Essentially it has been to keep Article 13 as is and to
introduce a LOB to ensure economic substance and business purpose. Basically if
entity meets the provisions of the LOB, capital gains will be levied in Mauritius. And if
entity does not satisfy the provisions of LOB, capital gains shall be taxed in India
This would ensure that Mauritius retains some taxing right under Article 13. However
as the right to tax capital gains has been given exclusively to India, the LOB becomes
superfluous and inoperative

The LOB applies to Article 13 (4) only.

What types of property and non-shares would fall under 13 (4) are unknown. If
immovable property, movable property of a business unit and disposal of shares in a
company resident in India are taxed on capital gains in India, there would be nothing
left to tax by Mauritius.


The LOB does not apply to Article 13 (1), 13 (2) and 13 (3) A.
It means that even if an entity that is resident of Mauritius meets the LOB clause, it will
still be taxed on capital gains on disposal of shares in India as Article 13 (3) A is not
subject to the LOB.


Article 8 para 5 of the protocol on grandfathering provision

There is a major difference in the provision for grandfathering between the two texts.

In the mid June draft proposal, at (4) it is stated in a stand alone Article that
the provision of this Article shall apply only to investments made after the date of entry
into force of this protocol. It means that the grandfathering clause applies to all articles of
the treaty.

While in the signed protocol of 1st July 2015, at Article 8 (5) it is mentioned that
the provisions of this Article shall apply only to investments made on or after the date of
entry into force of the Protocol. However it adds that it applies only to Article 13 (4).
As mentioned above, we do not know what would fall under Article 13 (4) in terms of
taxing rights.
In addition, the Article states that the cases of legal entities not having bona fide business
activities shall not be covered by Article 27 A (1) of the Convention.
It means that the grandfathering provisions shall not apply to clause 3A of Article 13.
Consequently even investments done prior to the coming into force of the treaty will be
taxed on capital gains in India if the exit is made after 1st April 2017. This is tantamount to
retroactive or retrospective taxation.
Even the very strict GAAR to be introduced in India makes provision for adequate
grandfathering right. And yet we have obtained much less that even GAAR provides for.
There will be a rush by existing private equity players to exit before the 1st April 2017
deadline so as to avoid the payment of capital gains tax. While new funds and new
businesses will use jurisdictions other than Mauritius to domicile their structures as the
main attraction of Mauritius is being removed.

B. An evaluation of the likely consequences of the new protocol on global

business in particular and the national economy in general;

Everybody admits that the world is changing, that Mauritius must adapt, that we need a
paradigm shift and that we have to diversify in terms of products, services and geography.
That our international financial centre must have more substance, better governance and
greater transparency. This is absolute right and nobody disputes this.
As a matter of fact, the industry has been adapting by broadening its scope of services and
diversifying its geographical footprint. Furthermore, Mauritius has agreed to many changes
in the arduous and protracted negotiation with India in terms of sharing of taxing rights on

capital gains through a LOB, the grant of new taxing rights to India on fees for technical
services and other income, a bona fide clause for Article 11, a strengthened provisions to
further curb round tripping and a more robust exchange of information to fight money
laundering and combat terrorist financing.
We are also in the process of signing new agreements to ensure greater and enhanced
cooperation and exchange of information with other competent authorities. We have
raised the bar for substance and for the renewal of tax residency certificates. We are also
complying with FATCA and in its peer review the OECD has found our jurisdiction to be
almost fully compliant. The next adaptation would be to prepare the sector to meet the
challenges of BEPS (base erosion and profit shifting) and POEM (place of effective
management).This is possible if we ensure that there is more economic substance and
commercial value in the jurisdiction, if entities that are resident in Mauritius do what is
necessary to meet the new requirements and if we attract global players to use our country
as their regional headquarters and to carry out high value added activities such as asset
and wealth management, private banking, mergers and acquisitions, corporate and
investment banking, etc.
However this is a journey, not a destination. It is work in progress. It takes time to adapt
and Mauritius cannot afford in the mean time to throw away the baby with the dirty water
of the bath tub. Diversification and adaptation do not mean giving up an important market
to take a leap in the unknown. Substance does not mean that we have to eliminate
incentives to attract business to our country. They can go hand in hand as evidenced by the
economic history of Mauritius. A bird in the hand is worth two in the bush.
This is similar to what we are doing in other sectors. In tourism, we are diversifying the
geography of our tourists by penetrating new markets such as China, Russia, Middle East,
etc. But we are not giving up the traditional markets of Europe and South Africa in the
process. In the export processing sector, we continue to fight for AGOA facilities and other
trade preferences even if globalisation is eroding them. Simply because we need time to
adjust. Incentives and competitiveness are key to attracting business for a country that
does not have a large domestic market and is located far from the main economic
powerhouses. Government is giving substantial and significant fiscal and other incentives
to lure new investors (the recent example of the Smart cities). And yet we are removing the
most important attraction in one of the most hotly competitive sectors of our economy.

As well articulated by an economist

Il faut certes diversifier les marchs des services offshore. Mais personne na dit que la
diversification devrait se faire avec la disparition des marchs traditionnels. Sopre
toujours une transition au cours de laquelle on tire les leons de lexprience.
Up to 1st July 2015 (when the new protocol was signed), the Government of Mauritius
never crossed some red lines because of their potentially devastating effects on the key
economic indicators of the global business sector. Several documents have been produced
by the ministry of Finance over the years to underscore the importance of global business
and the treaty with India for the Mauritian economy.
Global business plays a vital role in the economic landscape of Mauritius. It is a key part of
the financial services industry which is an essential and important pillar of the countrys
economy. To have a comprehensive picture of the importance of global business, we should
consider the direct, indirect, induced and catalytic impacts of the sector. It is clear that it
contributes significantly in terms of economic diversification, Gross Domestic Product,
income, employment, tax receipts, export earnings, efficiency and productivity. It is a
sunrise sector with considerable potential for future development as opposed to some
sunset industries that are receding. It also has important multiplier and cascading effects
on the broader economy. Further, it is a high value added sector where Mauritius can
sharpen its competitive strength.

Some of main benefits of the global business sector to the economy are as follows:
i) it contributes to GDP growth : global business accounts for around 5 % of GDP while
financial services as a whole represents close to 11.5 % of GDP (the two are inextricably
intertwined). Its share of national output has increased as it is one of the best performing
sectors in terms of growth. Output in real terms has almost doubled over a relatively short
time span;
ii) it is a driver of economic diversification : it lessens our dependence on few sectors by
broadening the economic base, thus enhancing resilience to external shocks. It is a sunrise
industry which represents an excellent opportunity to compete internationally as a cost
effective location for high value services;

iii) it attracts new businesses and has clustering effects : the international financial centre
has a beneficial impact on widening and deepening the financial and business services of
the country. The Stock Exchange of Mauritius is being internationalised with the listing of
funds that are administered in our jurisdiction. Also, a multi asset derivatives platform has
been launched in the country. It enhances the attractiveness of Mauritius to become a
gateway between Asia and Africa as it provides high value added services sought by
investors and economic operators;
iv) it has high economic linkages : there are significant linkages between the global
business sub-sector and other high value added pillars of the economy. The global business
sector has provided huge business opportunities to international banks located in
Mauritius, service providers such as lawyers, tax experts, consulting companies,
accountancy and audit firms. As a matter of fact, many of the global banks located in
Mauritius are generating a significant proportion of their profit from the activities of global
business with India. Equally many service providers have a very high share of revenue
from that sector;
v) it generates employment opportunities : in addition to its contribution to overall
economic output, the global business sector is also an important direct and indirect
employer. Jobs are generated in banking and finance, company management, fund
administration, estate and trust, accountancy and auditing, tax and legal services and
related regulation and support. It currently directly employs around 3% of the labour
force. There are also its indirect and induced contribution to job creation. The
overwhelming majority of employees are Mauritians;
vi) it provides quality employment to graduates and professionals: the job opportunities in
global business are among the best-rewarded jobs in the country, yielding significant
economic benefits as these incomes are spent across a broad spectrum of the economy. The
sector is characterised by a higher proportion of managers and professionals and
administrative/secretarial occupations compared to the rest of the economy (in some
companies the share of graduates and qualified professionals is higher than 65 % of the
total count of employees). It meets the growing aspiration of young Mauritians who have
tertiary and professional qualifications;



it is a highly productive, competitive and efficient sector: one of the principal

determinants of productivity is the skill level and qualifications of the workforce. Its
output/value added per employee is very high in view of the intellectual capital and
innovation of the industry. As well as being a driver of high productivity, the presence
of a skilled workforce helps to attract FDI;

High skill levels are reflected in the higher than average wages earned by financial services
workers. Mean and median earnings are also rising faster than for the economy as a whole;
viii) it is a very important tax contributor: it adds significantly to the tax receipts of the
country in terms of taxes it pays (corporation tax), taxes it administers (PAYE) and taxes it
contributes to (VAT). For instance the direct corporation tax paid by global business
companies accounts for around 30 % of the direct tax receipts of government. This shows
that the sectors share of direct taxation is around six times its contribution to GDP. It is
much more than the tax proceeds from the traditional sectors of the economy;
Equally, receipts from PAYE is proportionately higher than its share of employment as
employees typically earn quite high salary because of high skill levels and the nature of the
services provided. This also has implications for VAT collected as employees in global
business have higher disposable and discretionary income.
ix) it brings in licensing, registration, company fees and property taxes, etc: the sector
contributes by way of fees paid to the FSC and the Registrar of companies, local rates and
property taxes;
x) it has important indirect effect: these are the effects that occur in the wider supply chain
of the global business industry as these firms purchase goods and services from suppliers
in Mauritius. These impacts are felt in utilities, transportation, retail trade, insurance,
rental of buildings, and other suppliers;
xi) it has an induced effect on the economy: this is driven by the spending of people who
are employed directly and indirectly in the sector. The value added multiplier for the global
business could range from 1.5 for GDP to 2 for employment;
xii) it also has strong catalytic effects: the provision of financial services in Mauritius
facilitates the growth and productivity of other industries. These spillovers or catalytic
effects are not always quantifiable but they do exist. These effects are very visible in
tourism, real estate, construction, training and education and philanthropy amongst
others. Taxi drivers and artisans also benefit from the sector. It fosters entrepreneurial

development and promotes economic productivity. For instance, global business in

Mauritius generates extra visitor nights as customers travel to our country to meet their
service providers and also to hold Board meetings. The impact on tourism revenues is
likely to be even more pronounced, since the majority of visitors who come to make use of
financial services are high-end tourists who travel first/business class and stay in five star
hotels. In some cases, they have invested in other sectors of the economy (real estate, IRS).
It would have been very difficult to envisage the development of the Cybercity without the
global business sector. Almost all activities in Ebne depend-directly, indirectly, inducedly
or catalytically- on that industry.
xiii) It sharpens efficiency and productivity as a high end sector. It is also a high technology
and innovation sector;
xiv) It generates export earnings and supports the balance of payments: as an exporter of
high value added services, the global business sector makes an important contribution to
the countrys balance of payments thus helping to offset the deficit on visible trade in
goods. As it is a brain industry, there is hardly any imported raw materials and this adds
considerably to net export earnings;

The great omission from the document is a transitional MFN clause to protect us against
any discrimination subsequent to the coming into force of the new treaty. As a result other
countries will have a competitive advantage over Mauritius until such time that their DTAA
with India are reviewed to align them with our revised text. Multinational companies and
institutional investors will be tempted to migrate to these jurisdictions.
It would have been very difficult to build a robust and sustainable international financial
centre without the India traction. The critical mass of activities would be missing. This is
plain from the official figures issued by the FSC. Whether in terms of outward foreign
investments, portfolio investments and private equity funds, the share of India in total
investments and value is extremely high at around 70 %.
For instance, with only 9.9 % of structures (GBC 1), India accounts for 73.1 % of total
portfolio investment in our global business sector. Africa is at 3.9 % of the total portfolio
investment. For the high income generating funds (essentially private equity), India
represents 72.8 % of total investment with 65.5 % of the structures while Africa generates

only 2.9 % of the total investment with 5.5 % of the structures. We need to make the
distinction between the number of structures (GBC1) set up and the amount of
investments and their value added. Of course Africa is important for diversification but
there is no comparison in terms of investments, value addition, economic substance and
employment generated with what India contributes. While diversification is important, we
should not cut the branch of the tree on which we are sitting. Or cut our nose to spite our

Past experience shows very clearly that changes in the taxing rights on capital gains have a
huge impact on the flow of investments and businesses through our international financial
Three obvious examples come to mind:

There were some structures incorporated in Mauritius to invest in Indonesia

when the treaty with that country gave the taxing right on capital gains to
Mauritius. The DTAA was subsequently suspended and the business simply
dried up. There is hardly any structure that invests in Indonesia from Mauritius.
They have migrated to other jurisdictions;


There were some investments using Mauritius as a gateway to invest in China

when the taxing right on capital gains was with us. Again the business has
simply withered away since the change in Article 13 (on capital gains) in the
treaty between China and Mauritius. It has gone elsewhere;


There were some investments into South Africa using Mauritius as a place for
domiciliation. However subsequent to the change in Article 13 in favour of South
Africa, there is hardly any fund and investment that are structured in Mauritius
to invest in South Africa. It has gone to other financial centres;

It is also plain that other African countries (especially those that have not ratified DTAA
like Kenya and Nigeria) may use the Indian precedent to seek treaty review so as to change
the allocation of taxing rights, especially with respect to capital gains tax. Already,
countries like Mozambique are asking questions about the distribution of taxing rights.
Equally in the absence of the critical mass of activities generated by the India treaty, it
would be very difficult to penetrate the African market. Often corporates and institutions
that use Mauritius to invest in India are the same that broaden their businesses in Africa. It

will take a very very long time for a region that accounts for 3 % of our business to replace
one that represents 70 %. And competition for Africa is fierce.

C. A synopsis of the views expressed by professionals and operators of the


There has been a torrent of views and opinions expressed since people have become
aware of the drastic changes brought to the India-Mauritius DTAA.
These views are based on the assumptions that Articles 11 and 13 have been radically
altered against Mauritius, that the grandfathering clause is extremely restrictive and that
Mauritius has not obtained a Most Favoured Nation clause.
Below is a sample of what some professionals and industry experts have stated


The first to shoot is a former Governor of the Central Bank :

The amendment to the DTAA will kill the global business.


A former Deputy Governor of the BOM and former Chairman of the FSC wrote:

Have we burnt our boats?

If we have already committed ourselves to a self destructive course, it may indeed be too
late to reverse the damage done to our jurisdiction
Could we save the sector from impending disaster?
As practitioners in the offshore sector know, the provision at Article 13 relating to
exemption from capital gains tax in India of investments undertaken by Mauritian resident
companies under the DTAA is its principal attraction to international investors going
through the Mauritius route. If it were diluted or restricted, it might have grave

consequences not only for the offshore business going to India. It would also affect the
sector as a whole in view of Indias importance to global business.

An operator in the global business sector mentioned the following in an opinion

Any concession regarding the right to tax gains realised on the disposal of such assets
being divorced from residence of the permanent establishment owning them would
therefore deprive Mauritius of its competitive advantage and surely signal the slow death
of many management companies.
Clearly such a development would go against the public commitment taken by both the
Minister of Foreign Affairs of India and Prime Minister Modi to the effect that, in line with a
long tradition ,India would do nothing to harm the interests of Mauritius
The immediate effects of such a scenario (a change in Article 13) in what is already a
hugely challenging global environment could be terribly damaging for the socio-economic
stability of the country. It will add a huge burden on an already difficult situation as
regards the employment prospects for fresh graduates and young professionals. The
financial services would be put at risk,let alone all the efforts which have been invested
over the years for making Mauritius into a respectable regional financial centre


A lawyer well versed in global business activities has argued that

The large management companies and banks are not likely to lose as much as the country
because capital being mobile, they are likely to move their business to the country chosen
by their clients. The management companies and banks are going to look at their
commercial interest and will obviously follow their clients. The big loser is Mauritius
because jobs shall be lost, taxes revenues shall be lost (40% of income tax collected comes
from GBL 1 companies, FSC licensing fees, and obvious the income tax on salaries and the
profits of management companies, banks, firm of auditors, property developers in Ebne
and Port-Louis), job creation for the youth coming onto the job market shall not be there.
He went on
60% of the global business today is in respect of Indian investments. We have a number of
Indian companies who have set up shop in Mauritius and they are likely to close their
activities in Mauritius. India has got a very good double taxation treaty with African states

and from what seems to be in the protocol, it does not create a reason why they should set
up office in Mauritius in respect of their African investment.


A former CEO of GFM , a body that represents the global business stated that

If we have changed Article 13, it will be detrimental to global business. Equally if banks
have to pay withholding tax on interest, they may decide to leave Mauritius


Another observer gave his views on the new protocol in the following terms

It appears we have just signed up to a one-sided protocol in favour of India whereby the
benefits of Article 13 of the DTAA are being wiped out altogether at a stroke of a pen. If that
is so, it is going to be catastrophic for Mauritius offshore sector. It seems we have failed to
measure the terrible consequences on employment and economic growth of this one-sided
give-away agreement. A whole sector of economic activity risks going down together with
all its employees while international investors move away to other places.

An economist made the following comments

Pourtant, le nouveau trait fiscal entre lInde et Maurice risque davoir des rpercussions
bien plus srieuses que lcroulement du groupe BAI. Mais lactualit offshore nintresse
pas la masse, elle est trop complique comprendre. Les socits de gestion et les banques
internationales seront affectes par tout changement au statu quo. Une contraction du
secteur offshore entranera des licenciements, et il sera encore plus difficile aux jeunes
diplms de trouver un emploi. Les effets indirects seront multiples : les restaurants
accuseront une baisse de frquentation, les bureaux perdront des locataires, le
transporteur national aura un taux de remplissage rduit, et les taxis travailleront moins.


What industry representatives are saying?

The Mauritius Bankers Association has made representations to the Minister of Finance, to
the Minister of Financial Services and to the Governor of the Bank of Mauritius on the
adverse effects of the new protocol on our financial services industry.
GFM and ATMC, two associations of industry operators, have reached the conclusion that
the new protocol is bad for our country. And same has been communicated to the
competent authorities.
The Minister of Financial services, in several meetings with industry representatives, has
reassured the industry and promised that Government will do its best to change some of
the provisions of the new protocol in an attempt to soften the adverse impact on the sector
and the national economy.
The Minister has also informed representatives of the Global business industry that the
Minister of Finance of Mauritius has written to his Indian counterpart to revise some of the
provisions of the signed protocol of 1st July 2015.
The very fact that the Minister of Finance has written to his counterpart to renegotiate three
aspects of the 1st July protocol is a recognition that the revised terms will harm the economic
and financial interests of Mauritius. We all hope there will be a positive response from India
to the proposals made by the Minister of Finance.
We need a balanced outcome that would somewhat protect the economic interest of
Mauritius while accepting some of the demands made by India. Undoubtedly the sector would
be affected by any review that includes a LOB and a bona fide and main purpose test. The
industry has no choice than to accept that there will be some loss of business going forward.
What worries the industry and is a major cause of concern is the scale of the losses that could
occur and the damage that could be inflicted if there is no substantial changes in the contents
of the 1st July protocol. It is the difference between a tremor and an earthquake.
The response to break the logjam should have been around the following measures



A sharing of taxing rights on capital gains between the two countries through the
introduction of a limitation of benefits clause. Akin in principle to what exists in the
treaty between India and Singapore. This will ensure greater substance in Mauritius
while those entities with little value added would either migrate or be taxed in India;


A bona fide and main purpose test clause for article 11 that deals with banks interests.
This will guarantee more substance in Mauritius while preventing international banks
from using the jurisdiction to simply book transactions on their balance sheet. Banks
that meet this test would avail of the benefits of the treaty while those that do not
would be taxed in India;


A sharing of taxing rights between Mauritius and India on fees for technical services
and other income based on the principle of beneficial ownership;


A strengthened provision to further curb alleged round tripping and to reassure India
that we will not tolerate such practices by Indian companies;


A more stringent exchange of information clause as per the OECD model to better
prevent money laundering and fight terrorist financing. Again to comfort India that
Mauritius will not tolerate being abused and misused by financial fraudsters;


A reinforced governance and transparency provision to ensure more business purpose

and economic substance;


Better cooperation between the two countries through a strengthening of the presence
of Indian tax officers at the Indian High commission in Mauritius ;


A new clause on assistance in the collection of taxes.

We obviously need a grandfathering clause to protect economic operators who in good faith
have invested in India under a different tax regime. This is already provided for in GAAR and
there is no reason why it cannot be extended to Mauritius.
We also must be reassured that there will be no discrimination against Mauritius once the
revised terms of the treaty are implemented. Otherwise entities will simply move to these
jurisdictions that still have good treaties with India.
There is considerable leeway and flexibility to reach a balanced agreement within the above
framework. Of course there is always the risk that there is no outcome at the end of the day.
Then Mauritius would have to decide between a very bad revised treaty with dire
consequences and no agreement. What is the lesser between the two evils? We are obviously
not there yet.


Concluding remarks
Negotiation is always about reaching an intermediary point between the positions of the two
parties at the table. It is about a balanced outcome that protects our vital economic interests
while meeting some of the requirements of the other party.
It is abundantly clear that there has been a radical shift in the negotiating stance of Mauritius
between mid-June. 2015 and the signature of the 1st July protocol.
Unless the Protocol is amended, the consequences will be dire for a vital pillar of our national
economy. This is the informed view of the overwhelming majority of industry professionals
and experts. It is also based on the experience of recent history, solid empirical evidence, and
objective facts and figures.
Government has reacted and reassured the industry that negotiations are still on going and
that the contents of the 1st July protocol are still being discussed and that they are not final.
We pray that such is the case and that Mauritius will be in a position to renegotiate some of
the Articles of the signed protocol of 1st July 2015, especially Article 11 (on withholding tax
on banks interests) , Article 13 (on the right of Mauritius to tax capital gains) and the
grandfathering provisions (by protecting existing structures and investments). In addition we
hope that there will be a MFN clause (to safeguard Mauritius against discrimination from
other treaty partners of India).

Dr Rama Sithanen
Minister of Finance (1991-1995)
Vice-Prime Minister and Minister of Finance (2005-2010)
21st July 2015


Dr Rama Sithanen is a professional economist with more than 36 years of experience in a

combination of policy making, practical and hands-on economic activities and advisory work.
He holds a BSc Economics with First Class honours and an MSc Economics with a Mark of
Distinction from the London School of Economics and Political Science and a PhD in Political
Science from the University of Brunel in the UK.
He has worked for and has been a consultant to regional and international organisations
He has also acted as Economic Adviser to Governments in the Indian Ocean region and in
Africa on macro economic matters and sectoral issues.
His domain knowledge of the DTAA between India and Mauritius has been informed and
sharpened by the following:

he was an active policy maker in the launching of the global business sector in 1992;


he played a major role in the setting up of the legislative, legal, regulatory, institutional and
incentive framework for the development of global business in the 1990s ;


he has led several delegations to discuss the DTAA with Minsters of Finance of India. In the
early 1990s with Dr Manmohan Singh as Minister of Finance of India and between 2005 and
2010 with Minister Chidambaram and Minister Mukherjee when they held the Finance


he has been part of many Prime Ministerial delegations to India that have, amongst others,
discussed the DTAA at the highest policy making level;


during the visit of the Prime Minister of Mauritius to India in May 2014, he was requested to
produce a document that could constitute the basis for a resolution of the issues relating to the
DTAA. He submitted a paper entitled Proposals for a balanced outcome in the DTAA
negotiation between India and Mauritius in June 2014 to both the Government of India and
the Government of Mauritius for consideration.


he has deponed before the Parliamentary Committee of the Indian Parliament on the impact of
the direct tax code of India on the DTAA treaty with Mauritius. The Committee was chaired by
the former BJP Minister of Finance of India;


he is regularly a speaker, a resource person or a panellist at national, regional and

international conferences where matters concerning the DTAA between India and Mauritius
are discussed;


he has written several articles on the subject matter to defend the integrity and the interests of
the Mauritius global business;


he has given several interviews to the spoken, written and digital media in India on the subject
to explain the position of Mauritius in the difficult negotiation process of the DTAA.