Trouble in Paradise? Mauritius/India Double Tax Arrangements under Threat

In the last decade or so, Mauritius has gone from being an Island known predominantly for its tourism, to one which has established a thriving finance industry business which has attracted to its shores many thousands of companies, including global banks. 

The banks and trust companies which have set up shop in the Island have been attracted partly by the availability of a well educated but relatively inexpensive work force, but also by its long-standing double tax treaty with India.  Indeed, according to official figures released by Delhi’s Ministry of Commerce, a whopping 42% of India’s foreign direct investment from 2000 to 2011 came from Mauritius. 

However, as many offshore territories have found to their cost in the past, enormous success in attracting business often causes an unwelcome spotlight to shine on the territory, and it seems that this is now a real threat for Mauritius.  India, which has been taking a number of well publicised measures to try to prevent tax leakage as its economy slows, is currently reviewing the DTA between the two territories, and it is widely expected to propose changes that will hamper the Island’s attractiveness as an offshore location for Indian clients or Indian investment.  Mauritius is reportedly trying to step up its business links with African countries with which it has DTAs in place in a bid to replace work that it anticipates losing from India.

Threats to the Mauritian finance industry are perhaps less of a fundamental threat than in some of the other offshore Islands.  The industry accounts for only about 5% of GDP, whereas in some of its competitor jurisdictions  the percentage is more than 10 times that level.  Nevertheless, it will be a worry for the Island’s government at a time when the tourism industry is being hit by global financial problems.