As many are now aware, the double tax avoidance arrangement
(DTAA) between India and Mauritius was
amended through the protocol released last month. The direct impact
summarized in one line is as follows:
India shall now tax capital gains arising from alienation of
shares by a Mauritius investor acquired on or after 1 April 2017 in
a company resident in India, whereas share investments before 1
April 2017 shall be grandfathered and shall not be subject to the
Further, on account of a provision in the India-Singapore DTAA,
the benefits in respect of capital gains arising to Singapore
residents from the sale of shares of an Indian company shall remain
in force only so long as the analogous provisions under the
India-Mauritius DTAA continue to provide the benefit. Therefore,
benefits available in respect of capital gains under the
India-Singapore DTAA shall fall away after 1 April 2017, with no
certainty on whether pre-1 April 2017 investments would be
Investments in equity and preference shares via Mauritius
and Singapore entities into Indian companies will cease to offer a
zero capital gains environment post 1 April 2017.
That being the case, the following thoughts may be worth
considering to ensure long-term planning is consistent with the
changing tax environment:
Will It Be a Dutch Sunrise?
Foreign investors may explore jurisdictions, such as the
Netherlands. The India-Netherlands DTAA provides exemption from
Indian capital gains tax, with certain riders—(i) if a Dutch
shareholder holds less than 10 percent in an Indian company or (ii)
in the case of a sale of shares to non-Indian resident purchasers.
In addition, the benefits of the India-Netherlands Bilateral
Investment Protection treaty are fairly significant for businesses
with large government interfaces in India.
Centre of Debt Gravity? Return of
(Non)/Convertible Debentures? These instruments could see a
rise, especially among private equity funds keen on using Mauritius
and/or Singapore as gateways into India, as these instruments have
been left untouched by the protocol. In addition, there is a lower
withholding tax rate of 7.5 percent for interest income accruing to
Mauritian investors, which could make these compelling investment
Several other issues may arise from these recent amendments and
they would likely continue to affect this space if the
India-Singapore DTAA were to be renegotiated.
If you have any questions about the topics discussed in
this Alert, please contact Saionton Basu in Duane
Morris' London office, any of the attorneys in our India
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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