Mauritius has finally inked a historic multilateral instrument (MLI) designed to prevent Base Erosion and Profit Shifting (BEPS) by multinational enterprises.

This came nearly a month after 68 jurisdictions, including India, signed the Multilateral Convention to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (MLI).

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, say tax experts.

The island nation notified 23 jurisdictions to which it wishes to apply the provisions of MLI. It has excluded 17 countries including India.

Mauritius has excluded India although the latter had, when it signed the MLI on June 7, included the island nation as part of its covered tax agreements.

For Mauritius, the MLI was signed on Wednesday at the OECD headquarters in Paris by Mahess Rawoteea of the Ministry of Finance and Economic Development.

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.

Experts’ take Mauritius’ move to keep the bilateral tax treaty with India outside the covered agreements for MLI would mean that the terms of MLI would not apply to any transaction entered between tax residents of India and Mauritius, said Rakesh Nangia, Managing Partner, Nangia & Co LLP, a CA firm.

Girish Vanvari, National Head of Tax, KPMG in India, said this indicates that the tax treaty related BEPS measures will not impact investments in India routed through Mauritius, particularly the grandfathering of investments provided through the amendment to the bilateral tax treaty in May 2016.

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, Vanvari said.

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 Maheshwari, Partner, Ashok Maheshwary & Associates LLP, said that Mauritius has kept the recently amended treaty with India outside MLI. This should be seen as welcome move as there would be status quo as far as the amended treaty, he said.

“Therefore grand fathering provisions remains unaffected and it puts an end to the uncertainty surrounding the issue,” he said.

Concerns over ‘principle purpose test’ and ‘treaty abuse’ provision in MLI and their possible applicability to Mauritian investments made into India (pre-April 1, 2017), the key factors for Mauritius not notifying its DTAA with India, as a covered tax treaty under MLI, according to Maheshwari.

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.

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