‘We’re for ensuring there’s no perception of wrongdoings’

The allegation of round-tripping of money through shell companies formed in Mauritius is factually incorrect, unfounded and a perceptual fallacy.

We have gone to great lengths to ensure that there is no perception of wrongdoings. Allow me to give you some examples: Firstly, whenever a company doing business globally is incorporated in Mauritius, the applicant must take an undertaking, by law, that it will not accept funds derived from sources within India from Indian Residents for investment purposes in India, unless appropriate written approval from the relevant Indian authorities have been obtained for such investments.

Secondly, an undertaking by the Corporate Service Provider in Mauritius is also required, to ensure that no shares will be offered to or subscribed by Indian Residents which will be financed by funds derived from sources within India, unless appropriate written approval from the relevant Indian Authorities have been obtained.

Thirdly, the Financial Services Commission (FSC) furthermore imposes specific conditions whenever the Mauritius company is promoted by an Indian Corporation. The promoter is required to confirm that the company shall not re-invest into India funds derived from sources within India, failing which this license may be revoked under the law and the company is further required every year to submit, along with its audited accounts, to the FSC a certificate from its auditor to the effect that the company has fully complied with the conditions above.

Fourthly, Mauritius has been the first country to allow a permanent posting of a revenue officer of the Central Board of Direct Taxes (CBDT) of India at the Indian High Commission in Mauritius.

In addition, for the past decade, the Government of Mauritius has been amending laws to strengthen the ‘substance’ requirements for entities operating in the global business sector.

On April 10, 2018, SEBI issued a circular with a detailed framework for risk-based KYC documentation of FPIs. According to the new SEBI rule, non-resident Indians, overseas citizens of India and resident Indians cannot be beneficial owners of FPIs. The circular emphasises that the threshold for a beneficial owner in case of a partnership firm or trust stands at 15 per cent and 25 per cent in the case of companies. Whereas, for a fund incorporated in a high-risk jurisdiction, the threshold is further reduced to 10 per cent.

Following the new BO rule, Designated Depository Participants have been requesting confirmations from FPIs with respect to the threshold percentage held by NRIs and PIOs. Therefore, SEBI’s BO rule is amply policed at the level of the DDPs in India, and the SEBI circular is explicit on the fact that investments of FPIs exceeding the prescribed thresholds would not be eligible to use that entry route in India.

Indeed, articles regarding a purported list of high-risk jurisdictions were published in July 2018 by some press in India. Mauritius, along with 25 other countries, were labelled as ‘high-risk’.

After the publication of such press reports, the Government of Mauritius, reached out to their counterparts in India to seek clarification regarding the purported list.

SEBI, I have to stress, reassured the Mauritian delegation that it is neither working on, nor contemplating to produce any list at its level, which will identify Mauritius as a high-risk jurisdiction. SEBI further affirmed that these media reports are speculative in nature and that it has no adverse concerns with respect to the Mauritius jurisdiction.

We understand that a very limited number of custodian banks, perhaps even only one such bank, may have labelled Mauritius as a high-risk jurisdiction, as you mentioned.

As I have already mentioned, SEBI has made clear that it is neither working on, nor contemplating, any list which classifies Mauritius as a high-risk jurisdiction, so we do not consider it appropriate to speculate further.

Having said that, I wish to stress, rather, that there are a multitude of compelling reasons why investors use Mauritius as their destination of choice to invest into India. The Mauritius International Financial Centre (IFC) offers a plethora of services, in a well-regulated eco-system, which enable successful cross-border investments. The appeal and economic track-record of Mauritius provides certainty, stability and trust to the international community.

Mauritius possesses an investment-friendly regulatory regime, a skilled and bilingual workforce, a robust and independent legal system, competitive operational cost, amongst others. As a business hub, Mauritius is known for being the freest and most business-friendly country in Africa. It has to be noted, that Mauritius ranks first in Africa and 25th among 190 countries in the World Bank Doing Business 2018.

As a matter of fact, Mauritius represents India’s second largest source of FPI flows. I am, therefore, confident that investors would still find Mauritius a preferred investment hub.

India and Mauritius signed a Protocol in May 2016 to amend the India-Mauritius Double Tax Avoidance Convention (DTAC). The protocol provides for a grandfathering clause with regard to shifting of taxing rights on capital gains. From April 1, 2017, to March 31, 2019, firms based in Mauritius will have to pay capital gains tax at 50 per cent of domestic tax rate of India, subject to the satisfaction of the Limitation of Benefit (LoB) conditions. The conditions include a minimum spending of Mauritian rupee (MUR) 1.5 million (around $44,000) during the preceding 12 months, and proof that the investment structure was not established to obtain a tax benefit. After April 1, 2019, the full domestic tax rate will be applicable on firms’ capital gains on sale/transfer of Indian shares by Mauritius-based firms.

Pursuant to the changes to the India-Mauritius DTAC, Mauritius continues to play a crucial role in India’s economic growth by offering a strategic platform to Indian investors for inbound and outbound investments. The amended India-Mauritius DTAC has provided certainty and predictability regarding the tax treatment of income earned by foreign investors and has also enhanced India’s position as a favoured investment destination.

Internationally and in India, a constant debate has been raging over the issue of tax avoidance and evasion, and India has sought to address this issue by bringing in General Anti-Avoidance Rule (GAAR). As I have already mentioned earlier, Mauritius is a jurisdiction of substance which adheres to the highest international regulatory standards. Global companies operating in Mauritius have to comply with stringent substance requirements, ranging from physical presence to central management and control requirements.

Given that Mauritius has consistently been complying to all international standards and norms, especially when it comes to financial supervision, transparency, and preventing the use of our IFC for tax evasion, we do not foresee that GAAR would affect Mauritian domiciled investments. The GAAR will not apply to a bona fide transaction with a primary purpose other than tax avoidance, even in circumstances where the resulting tax benefit is substantial. In addition, the GAAR provisions do not apply to:

· an arrangement where the tax benefit in the relevant tax year arising, in aggregate, to all the parties to the arrangement does not exceed INR 30 million;

· a Foreign Portfolio Investor (FPI) who does not claim tax treaty benefit and who has invested in listed or unlisted securities with the prior permission of the competent authority under the relevant regulations;

· a non-resident, in relation to investment made, directly or indirectly, in a FPI by way of offshore derivative instruments or otherwise;

· any income accruing or arising, or deemed to accrue or arise, received or deemed to be received from transfer of investments made before the 1st of April 2017.

And I re-iterate the LoB clause in the amended Mauritius-India DTAC, which requires a minimum spending of MUR 1.5 million, around USD 44,000, during the preceding 12 months, which is proof of substance and presence in Mauritius for India-bound investments.

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