A large number of foreign institutional investors who trade on Indian stock markets operate from Singapore and the second is Mauritius. In accordance with the tax treaty between India and Mauritius, capital gains from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares were sold. Therefore, a company established in Mauritius that sells shares of an Indian company does not pay taxes in India. Since there is no capital gains tax in Mauritius, the overall profit escapes tax. Companies may be considered established because of their administrative headquarters, organizing country or other factors.  The criteria are often set out in a contract that may improve or repeal local law. . . .