India might be losing millions in tax revenue, as major companies operating in the country are using Mauritius' attractive tax regime desgined to bring funds in from offshore accounts.
Local subsidiaries incorporated in Mauritius are eligible for tax exemptions in countries with high corporate tax on account of double tax avoidance agreements (DTAA) with the Mauritian government.
For foreign investors looking to do business in India, Mauritius has been the most ideal starting point for over a decade. The African island nation is the main provider of foreign direct investment (FDI) to India and also the preferred jurisdiction for Indian outward investments into Africa. Between 2001 and 2011, 39.6% of FDI coming into India, originated in Mauritius.
Sequoia used that structure to legally avoid US and Indian taxes"
Investments in India via companies registered in Mauritius have shrunk since the government renegotiated the terms of the bilateral double tax avoidance treaty in 2016. However, the tax haven continues to be a hub for capital flows fueled by companies which operate in India.
According to tax records accessed by the International Consortium of Investigative Journalists (ICIJ), as many as a fourth of all companies named in the leaked documents had India as their country of activity.
Sequoia Capital, one of the most active investors in the Indian startup ecosystem, has been reducing its tax burden in India by setting up shell companies in Mauritius.
According to Quartz, which detailed Sequoia India's presence in Mauritius, the company which has close to $4bn invested in Indian companies, made those investments via a complex corporate structure based offshore. "Sequoia used that structure to legally avoid US and Indian taxes," Reuven Avi-Yonah, a leading tax law professor at the University of Michigan, who reviewed the papers for the Quartz.
Another big corporation which used the Mauritius route to propose a joint venture (JV) in India and maximise tax benefits is Minnesota-based Mayo Clinic and its subsidiary, the Mayo Foundation for Medical Education and Research (MFMER).
The business plan of Mayo Mauritius states that "the main business activity of the company will be to invest in business that complement Mayo Clinic activities'' and it should be structured in such a manner that it avoids giving Mayo's US affiliates a taxable presence in India.
It used the Mauritius route to enter into a partnership with Apollo Hospitals and GMR to set up a high-end hospital near Hyderabad airport. Both Mayo Clinic and Apollo Hospital now state that the proposed hospital project failed to take off.
About 22% of the total entities - after adjusting data for defunct entities - disclosed by the Mauritius Leaks have India as their only or one of the countries of activity.
This includes high-profile names like GMR Holdings, Apollo Hospitals, Jindal Steel and Power and Kolte-Patil Developers. In statements, the companies have pointed out that all their corporate structuring was done in compliance with Indian law and regulation.
The UN World Investment Report estimates that lower-income countries cumulatively lose around $100bn every year to tax treaties detrimental to their interests.
The government of Mauritius denies that its tax laws facilitate tax avoidance and accused reporters of seeking to harm the country's reputation.