We do not understand the rationale around the choice of the 21 countries, but we seek clarification from the authorities concerned, said Mauritius Minister
The island nation fears that keeping it outside the ambit of the new rules could lead to investors turning to other destinations
Last month, CBDT released a notification that exempted investors from 21 foreign jurisdictions from Angel Tax provisions
The recently unveiled angel tax norms seem to have created flutters across borders. The Mauritius government reportedly plans to seek clarifications from Indian authorities on the exclusion of the island nation from the list of countries where investors will not be liable for Angel Tax.
“So far, we do not understand the rationale around the choice of these 21 countries, but we are seeking clarification from the concerned authorities,” said Mauritius’ minister of financial services Mahen Kumar Seeruttun, according to Livemint.
While flagging the island nation’s exclusion, Seeruttun said that Mauritius was one of the few countries in the world to have complied with all 40 Financial Action Task Force (FATF) mandates related to anti-money laundering and financing of terrorism. He also claimed that the island nation had put in place all strict ‘substance’ requirements for global financial services firms based out of Mauritius.
In the parlance of global anti-tax avoidance laws, substance mandates require a firm looking to set base in a country to fulfil minimum substance requirements, which range from having a local office to having local employees.
The vociferous opposition is likely the result of the potential impact that the new rules could have on the prospects of Mauritius as a major route for investments flowing into unlisted Indian companies.
The island nation also fears that keeping it outside the ambit of the new rules could lead to investors turning to other destinations, and companies would rather prefer to come directly to India to avoid the Angel Tax.
At the centre of the row is the recently released notification by the Central Board of Direct Taxes (CBDT) in May that exempted investors from 21 foreign jurisdictions from provisions of the Angel Tax.
In simple words, capital raised by startups from non-residents investors above the fair market value attracts Angel Tax and is chargeable at 30.9% on net investments over the fair market value.
The norms were envisaged with cracking down on money laundering but have since been criticised by startups saying that the rules discourage investments. Citing their rationale, homegrown players also claim that it is a common practice globally to sell shares at a higher premium.
The new norms brought a waft of changes, including multiple valuation methodologies, price matching and safe harbour clauses. While most of these announcements were welcomed, Mauritius seems to have been the collateral damage of the new norms.
While countries such as Australia, France, Germany, and the US have been exempted, tax havens and tax hubs such as Mauritius, Singapore and the Netherlands have been excluded from the list.
The new rules could likely ignite a diplomatic standoff as Mauritius has much at stake. As and when the two sides sit down for a debate, it remains to be seen whether Indian authorities offer a rebate to its ally in the Indian Ocean or whether they stand their ground.