CBDT clarifies past investment from Mauritius, Singapore, Cyprus will not be reopened for scrutiny
CBDT), has clarified that past investments made under certain tax treaties with countries like Mauritius, Cyprus, and Singapore will not be affected by a new rule called the Principal Purpose Test (PPT).
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The circular issued Wednesday move puts to rest industry concerns that their past investments might be reopened for scrutiny and clarify this aspect of retrospective vs prospective application of the Protocol to avoid any confusion or unnecessary litigation.
This is a big relief for taxpayers and investors who do business across borders with these countries.
In April, 2024, India and Mauritius amended their double-taxation avoidance agreement and included a clause which said revenue authorities would now scrutinise the exemption available under the treaty as per the Principal Purpose Test laid down in the protocol.
What is principal purpose test?
In the global tax treaty, signed by both India and Mauritius, there is Base Erosion and Profit Shifting (BEPS) rules under ‘pillar two’ model, which is crafted to ensure large MNCs pay a minimum level of tax on income arising in each jurisdiction they operate in.
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