Jump to full article: Business Standard (in), 2008-11-05
Intro: The government might put on hold foreign direct investment (FDI) proposals routed through Mauritius pending the revision of the current double taxation avoidance treaty with India.
This became evident after the department of revenue advised the Foreign Investment Promotion Board (FIPB) last week to reject a proposal by Japan Tobacco International (JTIL) Mauritius Pvt Ltd, a unit of the world's third largest tobacco company, to raise its stake in its Indian venture from 50 to 74 per cent on grounds that it comes under "treaty shopping".
"Treaty shopping" refers to the practice of routing investments by companies through a country like Mauritius that has a tax agreement with India. In this case, JTI Mauritius is looking to infuse $100 million in JTI India by increasing its stake.
A memorandum from the finance ministry to FIPB said if JTIL's foreign investment proposal is routed through the Mauritius unit, future capital gains, should JTI Mauritius sell its shares, will not be taxed under the provisions of India-Mauritius Double Taxation Avoidance Convention (DTAC).
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