Mauritius treaty -- CAG waits for missing files

Mauritius treaty -- CAG waits for missing files
RITU SARIN

NEW DELHI, JULY 6: The controversy over India's taxation treaty with Mauritius has taken a new turn with a special audit being conducted by the Comptroller and Auditor General (CAG) getting grounded due to non-submission of key files and documents. Sources say that though the Ministry of Finance has not admitted this to CAG, some files are untraceable.

After a spate of reminders, the CAG has once again written to the Department of Economic Affairs, the Ministry of Commerce and the Ministry of External Affairs to get the missing documents.

The CAG began its audit into misuse of the 1988 Double Taxation Avoidance Agreement (DTAA) by Indian companies last year, but despite several reminders, files containing policy decisions on implementation and review of the scheme have yet to be submitted to it.

The CAG's audit has shifted focus from investments of offshore companies in Mauritius which was the subject of the hasty April 6 clarification issued by the Ministry to Foreign Institutional Investors (FIIs) as well as Indian investment companies. The CAG is now focusing almost exclusively on Indian Financial Institutions (FIs) and private corporations also using Mauritius as a tax haven. The CAG is understood to be examining treaty misuse by some 120-odd Indian companies. These companies allegedly began operations in Mauritius to avoid paying capital gains, dividends and interest on stock earnings and investments.

Last year (1998-99) the inflow of funds from Mauritius stood at $ 590 million (Rs 2,482 crore), higher than the investments from USA which stood at $ 452 million (Rs 1,904 crore), and officials say there is every reason to believe most of this money was parked in the island country by Indian entities with the purpose of evading capital gains tax.

While ICICI figures prominently on this list of Indian FIs whose transactions in Mauritius are being audited, Kotak Mahindra, Videocon, Llyods Finance, Tata Industries, Larsen and Toubro, Essar, Spic and Indbank are among the private firms which figure on CAG's list.

But the audit has been floundering because specific figures of inflows and outflows of individual companies to Mauritius have not been submitted before the CAG. Important circulars and policy guard papers on the DTAA have also not been made available.

The CAG has learnt that about five years ago a move for de-registering Indian companies located in Mauritius was made but there is no file movement about the decision being amended or rescinded. No files have also been submitted on the results of the five-yearly review of the DTAA envisaged in the 1983 treaty.