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Tax Highlights: Reflection & Look Forward
The Glaxo Smithkline Group saga continues
The brief facts of this case are as follows:
- The applicant company was incorporated in 1993 under the laws of Mauritius and it claimed to be tax resident in Mauritius.
- The applicant held the shares of Glaxo Smithkline Pharmaceuticals Limited (GSKPL), a company incorporated in India.
- As part of re-organisation of the group structure, the applicant proposed to transfer the shares of GSKPL to a group company, Glaxo SmithKline (Pte) Limited which is a company based in Singapore. The transfer was for cash consideration at a fair market value.
|Issue raised in case||Ruling of the AAR|
|Whether the applicant investment is equity shares of GSKPL is a capital asset under Indian Income Tax Act 1961?||Since the applicant did not have any intention to trade in those shares, the shares were defined as being capital assets.|
|Whether the captial gains arising from the sale of GSKPL shares to GSK Pte is taxable in India.||Capital gains that would arise would not be chargeable in India, in view of the DTAA between India and Mauritius.|
|If transfer is not taxable, whether the applicant needs to file return of Income Tax.||A person earning income that is chargeable to tax has a right to make a claim by invoking the Act to get benefit of DTAA.|
Double Tax Avoidance Agreements (DTAAs)
The DTAA between Mauritius and Germany has been re-negotiated. This coincides with the sigining of the Protocol which is part of the DTAA and is an administrative procedure which amends the previous treaty. This updated treaty will be more relevant to the current marketplace.
- Mauritius will sign five additional DTAAs with African countries in 2013.
- A Tax Information Exchange Agreement will be signed with India.
- There will be exemption from income tax for global funds which do no make use of benefits under DTAAs.
- There will be new measures to encourage the setting up of global headquarters administraion and global treasury management activities in Mauritius.
Tax compliance / administration
- As from 1 January 2013, taxpayers will be allowed an irrevocable option to be taxed on any surplus arising from foreign exchange differences on a realisation basis. This will be clarified by a Statement of Practice.
- A special scheme will be devised for dealing with long outstanding tax arrears remaining in the books of the MRA, some of which date back more than 50 years.
2012 was an eventful year, highlighted by the Glaxo Smithline Group legal battle. Multinationals can learn from this that the AAR is consistent in its belief that if a company is a resident of Mauritius, they must avail the benefits of the relevant DTAA. DTAAs look to be a major theme in 2013, with Mauritius aiming to secure a position as the gateway into African business. As is common with most countries, the cracking of the whip regarding tax compilance is not an oddity in the current climate.