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GAAR impact: No relief for companies based in Mauritius

India has made it clear to Mauritius that it will not make an exception on the application of the controversial General Anti-Avoidance Rules.

, ET Bureau|
Updated: Jul 09, 2012, 09.53 AM IST
NEW DELHI: India has made it clear to Mauritius that it will not make an exception on the application of the controversial General Anti-Avoidance Rules or GAAR for the companies registered in the island nation.

The finance ministry is, however, ready to allay all apprehensions over the regulation, an official told ET.

"It has been decided that while we will not agree to grant exemptions on the applicability of GAAR, we are open to discuss all apprehensions that Mauritius has over the regulation with its tax experts," the official said.

India's decision to hold further discussions with the Mauritian officials on the issue has been communicated to the visiting delegation, headed by foreign and international trade minister Arvin Boolell, he official added.

The prime minister of Mauritius, Navinchandra Ramgoolam, had in April written to his Indian counterpart, Manmohan Singh, proposing modifications in the bilateral tax treaty so that any firm with a tax residency certificate from Mauritius would not be subject to GAAR.

"Since GAAR is not specific to any country, it is not appropriate to provide an exemption in any specific treaty and it will also not be in accordance with international practice," the official said.

Boolell is believed to have discussed his country's concerns over GAAR in his meeting with Prime Minister Manmohan Singh on Friday.

GAAR, expected to be implemented from the next fiscal, is aimed at tax evading entities that route investments through tax havens such as Mauritius for the sole purpose of not paying tax.

The finance ministry had earlier said that provisions of GAAR would be applicable only to "impermissible avoidance arrangement", making the benefits of the bilateral treaty available to all bona fide permissible arrangements and transactions.

"We are ready to explain all intricacies of the legislation to Mauritius any time," the official said, adding that adequate safeguards provided in the GAAR legislation, rules and guidelines will ensure that it is applied only to counter cases of impermissible tax avoidance arrangements approved by a high-level panel.

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