Mauritius has denied a newspaper report that it offered India two islands to continue with the 1983 double-taxation avoidance treaty (DTAT). "Newspaper report of offer of two islands to India as part of a trade and investment deal is false and malicious,” Mauritius Foreign Minister Arvin Boolell said in New Delhi on Friday.

It was up to India to use the islands to its advantage, Boolell was quoted as saying by a national daily today. India could use North and South Agalega Islands for setting up hotels and resorts, besides utilising them for trade, marine studies, or for building a strategic presence in the Indian Ocean, the newspaper reported.

Agalega Islands is closer to India than Mauritius.

The news comes amid dwindling investments into India via Mauritius following New Delhi's proposal to introduce GAAR (General Anti-Avoidance Rules).

GAAR aims at plugging loopholes in the India-Mauritius double-taxation avoidance treaty by making disclosure of the source of funds mandatory. Mauritius has said earlier that GAAR was creating a lot of uncertainty among investors from that nation.

India believes a host of companies located outside Mauritius re-route money from the island nation to avail of the DTAA benefits, according to reports.

Boolell said that the island nation was open to amendments in the double-taxation avoidance treaty with India, but he denied that there was any misuse of the accord.

Meanwhile, India on Thursday assured Mauritius that the island nation’s concerns would be addressed while revising the tax treaty between the two nations. This followed visiting Mauritius Foreign Affairs and International Trade Minister Arvin Boolell saying that commercial viability of the treaty with India must be protected.

Boolell on Thursday met Indian Foreign Minister S.M. Krishna and Prime Minister Dr. Manmohan Singh. He is believed to have raised Mauritius' concerns on India's proposal to alter the basic tenets of the DTAA.

Mauritius has said it will cooperate with India to revise the DTAA to prevent its misuse by companies that do not have a genuine base in that country.

“When our prime minister came to Delhi, we submitted a series of proposals. These are being addressed. The Indian side has told us it would do nothing to harm the economic interests of Mauritius,” said Boolell yesterday.

He added that Mauritius wanted to maintain the sanctity of the treaty’s Article 13, which dealt with the issue of capital gains taxation. “We need to ensure what is being done would serve the interests of both countries,” Boolell said.

Currently, India’s Circular 789 states if companies from Mauritius show tax residency certificates, they would not be taxed in India. However, India plans to implement GAAR from April 2013, and this could override DTAAs.

But if the Circular 789 is retained, it would not be possible to bring foreign institutional investors (FIIs) from Mauritius under GAAR.

An India-Mauritius joint working group would meet on August 22-24 to hold negotiations on revising the DTAA.