India: Singapore, Mauritius fight for relevance after DTAA amendments in 2016

  • Two years after India renegotiated its double taxation avoidance agreements (DTAAs) with Singapore and Mauritius, the two face the possibility of fading importance as investment channels to the country.
  • Singapore and Mauritius, which have long been among the top destinations for routing investments into India, are struggling to stay relevant in the aftermath of the tax treaty amendments in 2016 that nullified a unique arbitrage opportunity for investors.
  • ET spoke to fund managers, tax experts, investors and officials based in Singapore and India to determine the longterm impact of the changes.
  • Foreign portfolio investors (FPIs) and private equity (PE) funds that once used the two jurisdictions to pool money might as well invest directly in India, given that long-term capital gains tax (LTCG) is now applicable at 10%.
  • Some funds have already moved to Europe, as LTCG doesn’t apply on funds invested through Netherlands and France, said the people cited above.
  • Others are looking to shift after the investment cycle ends in the next few years, insiders said. KKR, Blackstone, Brookfield, Multiples, Bain and Apollo have evaluated their tax structures, according to people with knowledge of the matter.
  • Some may move to Singapore from Mauritius as the former is looking to introduce regulations that could help funds better structure their pooling vehicles. Tax experts said Singapore may have an edge over Mauritius because of better infrastructure.
  • In what could be a reaction to the tax treaty amendment and a changing tax environment due to regulations such as Base Erosion and Profit Shifting (BEPS), Singapore is looking to introduce a framework to make setting up pooling vehicles simpler.
  • The Singapore Variable Capital Company would be a customised corporate structure that’s an addition to already existing ones such as companies, limited partnerships and trusts.
  • This could help even India-focussed funds, which could look at open-ended structures that investors could enter and exit at any point.

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