After renegotiating its agreement on double tax evasion with Mauritius in 2016, India has seen some positive developments. First, a brief summary: the essence of the 2016 renegotiation was to close the central loophole that made Mauritius a preferred investment route to India. The loophole was the residence-based tax on capital gains from the disposal of the shares. Shorn of jargon, which means that if a Mauritius-based company invests in shares in a company based in India and then sold those shares and made a profit, they would have to pay capital gains tax in Mauritius. In practice, Mauritius does not collect capital gains tax! This loophole was closed in 2016 and from now on there would be a source-based tax on capital gains. This means that if Mauritius-based companies sold shares in an India-based company, India would collect capital gains tax. Naomi Fowler – India and the renegotiation of its double taxation agreement with Mauritius: an update back to the main story – the huge relocation of capital away from Mauritius proves definitively that the debt exemptions it offered and the ease of creating Shell companies (the two key elements of the agreement on double taxation with India , amended in 2016) were the main reasons why it was a capital exporter. With the departure of these benefits, the benefits of Mauritius have declined considerably. India`s efforts to renegotiate the treaty to conclude at least one path of politically-lent-backed tax evasion at the highest level appear to have paid off.
This raises another question: where are they cooked? Some of them may have gone to Singapore. Inflows from Singapore doubled over the same period. In 2017, Singapore was the second largest source of inflows, with a value of 20% for $4.5 billion. A year later, this figure doubled to $8 billion, or 40% of capital inflows from foreign direct investment in 2018. Singapore remains by far the largest source in 2019. The governments of Mauritius and Zambia have begun negotiations for a new agreement to avoid double taxation (DBAA) following Zambia`s denunciation of the current DBAA in a notice given to Mauritius in June 2020. It`s a bit mysterious, because India also renegotiated its double tax evasion deal with Singapore in 2016 to fill exactly the same loopholes as Mauritius, which was a capital gains-based tax on the sale of shares.