Within a few days after draft guidelines on the General Anti Avoidance Rules (GAAR) are floated by India, Mauritius Foreign Affairs and International Trade Minister Arvin Boolell has arrived in India and is scheduled to meet Prime Minister Manmohan Singh and some of his Cabinet colleagues. Boolell tells Indivjal Dhasmana and Nayanima Basu that the sanctity of a tax residency certificate (TRC) should be maintained. He denies that lenient conditions on a TRC have led to mushrooming of post-box companies in Mauritius. Boolell says Article 13 in the double taxation avoidance agreement (DTAA) between India and Mauritius, which deals with the capital gains tax issue, should be respected. Edited excerpts:
Our finance ministry has issued draft guidelines on GAAR. FIIs routing money through Mauritius might come under GAAR. Are you apprehensive of the draft guidelines in any way?
No. Let me make it clear that the issue is substance over form. We know who our clients are and 'know your clients' is of vital importance. When it comes to auditing of accounts of companies, Indian auditors can come and audit accounts. If there is any concern that the fund coming from Mauritius is not genuine, the Mauritius authorities are very forthwith to cooperate. It would be in the interests of both parties to protect the DTAA, which has provided comfort to both the countries. We will give comfort to India on the issue of round tripping.
GAAR might not be invoked on Mauritius FIIs so long as circular 789, giving authenticity to a TRC, is not withdrawn by India. Are you apprehensive that it may be withdrawn? Will you talk to Indian ministers over the issue during your stay?
We will take up the issue. Strict conditionalities, such as the number of times the company has to meet, presence of directors in those meeting and information on bank accounts, apply before TRC is issued. Indian authorities annually ask for the number of TRCs issued. If we may need to make these conditions more stringent, there is room for discussions and we will look at it. But, TRC should be honoured by India, conditions may change.
Do you fear shifting of so-called post-box companies to other countries like Singapore from Mauritius if GAAR comes into effect from April 1, 2013?
If the objective is to ensure a fair collection of revenues, then let me highlight some basic points in this beautiful relationship. All prefer the Mauritius jurisdiction. What you want is foreign direct investment, you want your economy to grow, your rupee to be stable and you want to invest in African countries, for which you can use, Mauritius jurisdiction.
India has said Mauritius is not serious in revising the DTAA. The negotiations are stuck on capital gains tax issue. Will Mauritius agree to India's position in this regard?
If there is any loophole in DTAA that needs to be plugged on round tripping, we will do so. But, the sacrosanctity of Article 13 has to be consolidated. We want the treaty to be commercially viable.