India & Mauritius signed a protocol amending the Double Taxation Avoidance Agreement (DTAA) | Current Affairs | Vision IAS
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    India & Mauritius signed a protocol amending the Double Taxation Avoidance Agreement (DTAA)

    Posted 15 Apr 2024

    2 min read

    • Amendment included Principal Purpose Test (PPT) to avail tax benefits under the DTAA to plug the abuse of treaty for tax evasion and avoidance.
      • PPT lays out the condition that the tax benefits under the treaty will not be applicable if obtaining that duty benefit was the principal purpose of any transaction or arrangement.
      • Protocol to amend DTAA is aimed at making it compliant with Base Erosion and Profit Shifting (BEPS) Minimum Standards.

     

    Base Erosion and Profit Shifting (BEPS)

    • Refers to tax planning strategies that exploit gaps and mismatches in tax rules for tax avoidance by shifting profits from higher tax to lower tax jurisdictions.
    • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS aims to update international tax rules and lessen opportunity for tax avoidance by multinational enterprises.
      • India signed the convention in 2017.

     

    • DTAA is an agreement between two countries/territories with an objective to avoid double taxation on same declared asset in two different countries/territories.
      • DTAA between India and Mauritius was first signed in 1982 and amended in 2016.

     

    • Significance of DTAA
      • Promotion of cross-border investment by reducing tax burden on foreign investors.
      • Equitable allocation of right to tax between the ‘source’ and ‘residence’ countries.
      • Provides legal certainty on taxing international income.

     

    • Issues associated with DTAA
      • Treaty Shopping: Takes place when residents of a country, which is not a party to the DTAA, take advantage of the provisions.
      • Double non-taxation: Abuse of DTAA to avoid paying taxes in both countries.
      • Differential interpretations of tax treaties leading to protracted litigations.
    • Tags :
    • DTAA
    • India-Mauritius
    • Principal Purpose Test
    • BEPS

    Articles Sources

    https://indianexpress.com/article/business/india-mauritius-revise-tax-treaty-aim-to-plug-evasion-926
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