- The two countries India and Mauritius amended their 33-year-old tax treaty, bringing the curtains down on the Mauritius route, which government revenue officials and critics said had become synonymous with tax avoidance and abusive practices such as treaty shopping and round-tripping.
- The amendment to the 1983 treaty will come into force from April 1, 2017.
Under the new safe harbour rules:
- Gains will be taxed as capital gains than as business income. This will require them to reconfigure their plans.
- This will push offshore fund management companies to set up shop in India.
- It is not clear if the amendment covered investments made using hybrid securities.
- The extent of its applicability to hybrid instruments is still open, and they could technically walk away with residence-based taxation protections.
- What are hybrid securities?
Hybrid securities, often referred to as “hybrids,” generally combine both debt and equity characteristics. The most common type of hybrid security is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.