While signing the MLI on Wednesday, Mauritius has kept its bilateral tax treaty with India outside the list of covered tax agreements. The move to exclude India is expected to address the concerns of overriding impact of MLI on the revised tax treaty between India and Mauritius. The island nation notified 23 jurisdictions to which it wishes to apply the provisions of MLI. It has excluded 17 countries including India. The means that the terms of MLI would not apply to any transaction entered between tax residents of India and Mauritius
Once ratified, the MLI will affect as many as 23 tax treaties entered into by this island nation.
Mauritius has also reaffirmed that it will implement the minimum standards outlined in the OECD/G20 BEPS plan by 2018. It has committed to modify its remaining tax treaties through bilateral negotiations.
In spite of the work on the MLI being carried out since May 2015, the amendment to the bilateral tax treaty between India and Mauritius in May 2016 only acted as a precursor to indicate that Mauritius would not include India in the provisional list to address the concerns of the overriding impact of the MLI over the bilateral tax treaty which has now only been reiterated
As of now the applicability of the LOB article, the grandfathering of investments made up to March 2017, etc., would be applicable and hope that the status quo remains until the final lists are submitted to the OECD for ratification.
Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co said that India-Mauritius DTAA is a bilateral pact and will not come within the ambit of MLI because of reservation by Mauritius.
OECD’s role in curbing ‘profit shifting’ by MNCs
The multilateral instrument (MLI) is a legal instrument designed to prevent Base Erosion and Profit Shifting (BEPS) by multinational enterprises. BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
The MLI allows jurisdictions to transpose results from the OECD/G20 BEPS project, including minimum standards to implement in tax treaties, to prevent treaty abuse and “treaty shopping”, into their existing networks of bilateral tax treaties in a quick and efficient manner.
It was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.
The OECD is the depository of the MLI and is supporting Governments in the process of signature, ratification and implementation.