On 30 July 2020, Prime Minister Narendra Modi and his Mauritius counterpart Pravind Kumar Jugnauth virtually inaugurated the new Supreme Court building at Port Louis completed with Indian assistance which is in line with India’s vision of ‘SAGAR — Security and Growth for All in the Region’.
According to Prime Minister Modi, the development cooperation between the two is the heart of New Delhi’s approach to development partnerships and free of any conditions or commercial considerations. India’s development cooperation is marked by the core values of ‘Respect’, ‘Diversity’, ‘Care for the Future’, and ‘Sustainable Development’.
Small history of Mauritius.
In 1969, Mauritius gained independence from British rule. The country’s first government inherited a flagging economy that was unduly reliant on agriculture and tourism. In 1989, a blueprint was formulated to help the country become the principal destination for multinational companies looking to invest in Africa. In 1992, the government enacted the Mauritius Offshore Business Activity Act to streamline the country’s economic ambitions with its limited resources and manpower. As per new rules, foreign companies could incorporate local subsidiaries with restricted public disclosure and negligible taxation.
Mauritius double tax avoidance agreements (DTAA) with other countries allowed multinational corporations with relative anonymity and freed them from the obligation of paying high taxes in other countries. India is a signatory of such bilateral tax avoidance agreement with Mauritius.
Post Double Tax Avoidance Agreement with India.
This agreement opened a new route to multinationals to invest in India. Up to 60% of FDI and 25% of FPI which came into India were from Mauritius entities.
Multinationals started taking undue advantage of such agreement by hiding assets and profits from officials in countries with high corporate tax. Global giants in the name of tax planning have evaded taxes. Cases like Vodafone-Hutchison deal, Tiger global-Walmart deal etc have raised some serious deficiencies in India.
Read our Case study on Vodafone-Hutchison deal.
The International Consortium of Investigative Journalists (ICIJ) have published some documents of a Mauritius law firm which revealed that many large corporations might have migrated to Mauritius to bypass paying billions in tax on profits generated in third world countries.
The European Union (UN) blacklisted Mauritius in 2015. Oxfam named it a tax haven in 2016. Pressure from International communities built up on India to take action on such activities and finally in 2017, India amended the agreement (DTAA) by diluting the exceptional benefits.
Entry into Grey list of FATF.
The large tax evasions through Mauritius entities has caught an eye of the Financial Action Task Force (FATF).
FATF is an intergovernmental organization that designs and promotes policies and standards to combat financial crime. Its main objectives are to combat money laundering, target the financing for weapons of mass destruction, corruption, and terrorist financing.
FATF has now put Mauritius under Grey list of nations. Placement in grey list means the nation has extremely serious deficiencies in banking and financial activities.
Because of this listing Mauritius has an increased surveillance from international organisations. Organisations like World Bank, IMF would not support Mauritius in banking and financial activities. If Mauritius doesn’t rectify its deficiencies then it shall be listed in Black list where direct and immediate economic sanctions shall be imposed.
Is India the only country with such tax evasions?
No, many African countries are also facing this problem. For instance, Kenya has faced losses over such deals as the existing laws mandate that the sale of shares in a company will be taxed in the country where the transaction happened, not where the company operates its business.
Opinion:
In my opinion, the Indian government and Mauritius government should answer some unanswered questions like:
What was the detected amount that those entities have passed into India?
What was the estimate of undetected amount and what were their due diligences (on the part of authorities)?
Who benefited from such money?
When Mauritius was placed into Grey list, Indian statement said that it was not aware of the proceedings happened between FATF and Mauritius which lead to such kind of fixation. Question here is when India is a beneficiary of large investments from Mauritius entities for many years then why did Mauritius kept them in dark?
If governments answer these questions the picture would be clearer. Until then, let’s hope everything is going as per the law of the land.
– ANJAN KUMAR
(Opinion expressed by the author is his personal. The Generalist Insights take no responsibility of the opinion expressed.)
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