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India & Mauritius signed a protocol amending the DTAA

Why is it in the news?

  • India and Mauritius signed a protocol amending their Double Taxation Avoidance Agreement (DTAA), incorporating the Principal Purpose Test (PPT) to prevent tax evasion and avoidance.

More about the news

  • The PPT stipulates that tax benefits under the treaty won’t apply if obtaining those benefits was the main purpose of any transaction or arrangement.
  • This protocol aims to align the DTAA with Base Erosion and Profit Shifting (BEPS) Minimum Standards, which target tax avoidance strategies.
  • The DTAA between India and Mauritius was initially signed in 1982 and amended in 2016, with the recent protocol further enhancing its effectiveness.
  • DTAA facilitates cross-border investment by reducing tax burdens on foreign investors and ensuring equitable tax allocation between source and residence countries.
  • It provides legal certainty regarding the taxation of international income, promoting a stable environment for investment.
  • Common issues associated with DTAA include:

1) Treaty Shopping: Occurs when residents of a non-DTAA country exploit treaty provisions.

2) Double Non-Taxation: Involves abusing DTAA to evade taxes in both countries involved.

3) Differential Interpretations: Result in prolonged legal disputes due to varying understandings of tax treaty clauses.

路聽 聽BEPS refers to tax planning strategies exploiting gaps in tax rules to shift profits to jurisdictions with lower tax rates.

路聽 聽The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, which India signed in 2017, aims to update international tax rules to prevent multinational tax avoidance.


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