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The ratification by Mauritius of the Protocol amending the India-Mauritius Double Taxation Avoidance Agreement (“DTAA”) marks a significant shift in the operation of one of India’s oldest and most-used investment treaties. The Protocol introduces the Principal Purpose Test (“PPT”), aligning the treaty with the OECD BEPS minimum standards and materially strengthening India’s treaty anti-abuse framework
(A) Amended Preamble
The amended preamble expressly states that the objective of the DTAA is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. This reflects the OECD BEPS minimum standard and shifts the treaty from being purely a double taxation relief instrument to one that also combats treaty abuse
(B) Article on Entitlement to Benefits - Principal Purpose Test (PPT)
Under the PPT, treaty benefits may be denied where one of the principal purposes of an arrangement or transaction is to obtain treaty benefits, and such benefit would be inconsistent with the object and purpose of the treaty.
OECD Commentary
The PPT is based on the OECD principle that treaty benefits should be denied where one of the principal purposes of an arrangement is to obtain treaty benefits that would otherwise not be available
Why was a Bilateral Protocol Necessary?
Although India had designated Mauritius as a Covered Tax Agreement under the Multilateral Instrument (“MLI”), Mauritius had not. Accordingly, the MLI could not modify the treaty, making a bilateral protocol necessary
Current status:
Protocol signed
7 March 2024
Mauritius ratification
17 July 2026
Indian notification under Section 159 of the IT Act 2025
Pending
Entry into force
Upon completion of India’s notification process
(i) A Shift to a Purpose-Based Anti-Abuse Framework
The combined effect of the Tiger Global judgment and the introduction of the PPT under the India-Mauritius DTAA marks a significant shift from a rule-based anti-abuse framework (such as the LOB test introduced in 2016) to a broader, purpose-based anti-abuse regime.
(ii) TRC is No Longer Conclusive
A TRC continues to establish tax residence but is no longer sufficient, by itself, to secure treaty benefits. Following Tiger Global, the tax authorities may examine the commercial substance of the arrangement, its business purpose, and whether obtaining treaty benefits was one of its principal purposes
(iii) Substance Is Now Central
Merely routing investments through Mauritius is unlikely to suffice. Investors should ensure that Mauritian holding companies demonstrate genuine commercial substance through effective management, board meetings, employees, office premises, operational activities, and meaningful business functions. Structures lacking commercial rationale may face scrutiny under both the PPT and domestic GAAR
(iv) Different Anti-Abuse Standards apply to Pre and Post-2017 Investments
While GAAR grandfathering continues to apply for investments made prior to 1 April 2017, taxpayers would still be required to satisfy the PPT to claim treaty benefits.
For investments made on or after 1 April 2017, taxpayers would need to satisfy both GAAR and the PPT for claiming treaty benefits (other than capital gains, which are already taxable in India under the amended DTAA)
(v) Greater Focus on Structuring and Documentation
Maintaining robust contemporaneous documentation evidencing commercial objectives and business decision-making will be critical in supporting treaty benefit claims
