In the evolving landscape of international taxation, the past decade has seen a consistent and widespread acceptance of tax ‘anti-avoidance rules’ globally. These rules give tax authorities wide ranging powers to deny tax benefits. Recently, both the Indian and Mauritian Government took significant strides in this direction by entering into a Protocol to introduce an anti-avoidance rule known as the ‘Principal Purpose Test’ (PPT) within the India-Mauritius tax treaty framework. The PPT aims to deny the treaty’s benefits if any one of the principal purpose of a transaction, structure or arrangement is to claim such benefits. While the applicability of PPT to past transactions or exits remain uncertain, clients holding India investments in a Mauritius entity or looking to set up a Mauritius structure must assess if their setups withstand PPT scrutiny. India-Mauritius tax treaty continues to provide Mauritian investors several tax incentives such as lower dividend tax rate of 5% (for Mauritius companies holding at least 10% in Indian company) or 15% (otherwise), interest withholding tax rate of 7.5% and capital gains tax exemption on transfer of shares in Indian company (acquired prior to 1 April 2017), debt securities and shares of companies outside India. 

The Inland Revenue Authority of Singapore (IRAS) has recently introduced a significant change impacting investors in the form of a capital gains tax on the transfer of 'foreign assets' – the Foreign Disposal Tax or FDT. Effective from 1 January 2024, the amendment aims to tax the disposal of foreign assets by entities resident in Singapore under certain circumstances. 

For global investors looking to participate in the attractive India growth story, navigating the complex terrain of tax regulations can be challenging. In this regard, international tax treaties offer global investors much needed certainty with respect to the cross-border tax implications for their global income. Historically, India-Mauritius and India-Singapore tax treaties have offered benefits to investors from these countries in the form of capital gains tax exemptions. While such benefits have been phased out since 2017, eligibility for benefits under these treaties remains a contested issue before Indian courts. Revenue authorities have often challenged the eligibility of entities from Mauritius and Singapore for treaty benefits. Recent developments in the Supreme Court indicate that investors may have to remain extra cautious while claiming such tax treaty benefits.