New Delhi: Amidst concerns over Mauritius being used as a major route for avoidance of taxes on investments by Indian companies, Prime Minister Manmohan Singh and his counterpart Navinchandra Ramgoolam on Tuesday agreed on early conclusion of an agreement aimed at tackling this menace.
The two leaders reviewed the status of negotiations on the revised Double Taxation Avoidance Agreement (DTAA) during their talks here and directed officials to fast-forward talks in this regard.
The issue of DTAA came up among several other issues during the talks between Singh and Ramgoolam which included security cooperation and enhanced economic ties.
India announced a new economic package to Mauritius consisting of a Line of Credit of $250 million and a grant of $20 million. Five pacts were also signed covering the fields of education, textiles, sports and science and technology.
In a statement to the media after the talks, Singh said the two leaders reviewed the status of implementation of the revised DTAA Convention.
"Both India and Mauritius have an interest in ensuring that there is no misuse of the Convention," he said, adding "we are happy that the Joint Working Group on this Convention has resumed its work and held a meeting recently in Port Louis in December 2011."
He said the two leaders directed officials to continue their work "towards finding a mutually-acceptable and satisfactory solution to the issues that concern us at the earliest".
A joint statement said, "Both sides agreed to continue discussions at an early date with a view to reaching a mutually agreeable outcome."
Ramgoolam said he was confident that a solution would be found to whatever problems are there in the issue of Double Taxation Avoidance Convention.
Mauritius has been found to be used a major base for evasion of taxes by Indian companies and Indian tax agencies have been finding it difficult to nail the culprit.
In this backdrop, India has been pressing for re-negotiation of its DTAA with Mauritius to plug the loopholes and revenue leakage by way of alleged round-tripping and tax evasion.
Nearly 42 per cent of FDI into India comes through Mauritius. Likewise about 40 per cent of the FII fund flow into the country is believed to be routed through the island nation. A large majority of them are third country investors, who are believed to use the DTAA for saving capital gains tax.
According the DTAA, capital gains from sale of shares by Mauritius residents in India would be liable to tax only in their country and vice-versa.
Calling Ramgoolan as a "special friend" of India and a distinguished member of the Indian diaspora, Singh assured continued support to Mauritius in ensuring its security.
Noting that defence and security cooperation were among the key pillars of the bilateral relationship, he said, "We both have common security interests. India will continue to support Mauritius in ensuring the security and sovereignty of its land and maritime territory".
He said the two sides agreed to strengthen cooperation to address the growing menace of piracy which has emerged as a major security and developmental challenge for all littoral states of the Indian Ocean.
"A stable and peaceful Indian Ocean is an objective we both share".