Friday, April 06, 2012

GAAR won't be rolled back; Mauritius FIIs without significant presence to be taxed, says finance ministry
[Why should FIIs have to worry if they do have plans to rob India on genuine Tax Front: Let India (and Indians) get some part of the ill-got wealth from the shell-companies operating from overseas!! If Indians can pay capital gains tax, why should FIIs (Some say, this is the Indian "Black money" which comes in the form of FIIs money) escape opening, "Post Box" companies in Mauritius/Singapore??!! This will also help, India to cut short a part of the fiscal deficit, which is plaguing the economy as of now. However, FM, should not go ahead with the proposal of taxing the companies retrospectively--this might set a bad precedence. Also, the FM should keep away from the unholy companies of the foxes, like Kapil Sibal or Abhishek Manu Singhvi!! These kinds of low quality Congressmen (or Congress-wallas) are likely to sink the UPA's apple-cart!!]
NEW DELHI: The finance ministry has bluntly told representatives of top foreign institutional investors (FIIs) that it would not roll back the anti-tax avoidance framework proposed in the budget and asserted that investors who do not have 'substantial commercial presence' in Mauritius could be taxed under the new provisions.
But at the same time, ministry officials have assured FIIs that their concerns will be addressed when the Finance Bill is passed and the detailed rules regarding the new provisions are notified. FIIs want the government to explicitly define "substantial commercial presence" and they do not want the government to impose any tax on a retrospective basis.
"Our people are working on the rules... We told them that we will address their issues and try to clarify them in the rules after the passage of the Finance Bill," Finance Secretary RS Gujral told reporters after meeting representatives of top 10 FIIs, including those from Morgan Stanley, JP Morgan, CLSA and Goldman Sachs.
The proposed General Anti-Avoidance Rule (GAAR), which will come into effect from April 1, 2012, after the Finance Bill is passed, has unnerved FIIs, particularly the large numbers who route their investments through Mauritius to take advantage of the capital gains tax exemption provided in the India-Mauritius tax treaty.
Around 80-90% of FIIs registered in India invest through Mauritius.
In the first three months of 2012, overseas institutional investors have pumped in around Rs 45,000 crore into Indian stock markets.
GAAR TO MAKE INDIA UNATTRACTIVE:
GAAR empowers tax authorities to deny tax benefits if they feel a transaction has been structured in a particular way for the specific purpose of avoiding taxes.
Under the new rules, therefore, if a foreign investor is not able to prove that it has significant commercial presence in Mauritius, it will attract the provisions of the anti-avoidance framework, forcing it to pay short-term capital gains tax and making its returns from India less attractive.
"If they are permissible arrangements, clearly they are governed by provisions of the treaty and GAAR will not get invoked. But if it is an impermissible arrangement, then GAAR will be invoked and the treaty will not help," said Gujral, signaling the government's resolve to stick to its guns on this controversial issue and tax what it calls 'letter box' companies.
This is the second time this week that the government has made it clear that it is not rolling back some of the widely criticised proposals of last month's budget, as it seeks to emphasise the point that India is not a tax haven.
On Monday, Finance Minister Pranab Mukherjee told the UK's chancellor of the exchequer, George Osborne, that the government would not withdraw the proposal to retrospectively tax capital gains arising from an overseas transaction where the underlying asset sold was in India, indicating that it was firm in its intent to charge Vodafone Plc $2.3 billion for the Hutchison Essar acquisition in 2007.
The move to introduce the new anti-tax avoidance framework has been opposed by overseas bodies representing the financial services industry.
The Asia Securities Industry & Financial Markets Association along with the Securities Industry and Financial Markets Association has written to the finance minister saying "such onerous taxation or even the risk of such taxation could threaten this important source of capital for India's businesses".
ICI, the biggest US industry body of MFs that manages $12 trillion of assets worldwide, has also written to the finance ministry on GAAR and tax-related issues. Some ICI members are registered FIIs while others trade through participatory notes.
A concerned Mauritius government had last month said the new law would create uncertainty and said it would take up the issue at the next joint working group meeting with India.
"...we are concerned that in its current form the new law (GAAR) is likely to create much uncertainty for foreign investments. It is a matter that we will surely discuss with our Indian counterparts at the next meeting of the Joint Working Group so that there is both certainty and stability for cross-border investments to take place," said a Mauritius finance ministry communique.
Last week, the Indian government had clarified that gains made by Mauritius-based investors from trading in participatory notes would not be taxed. But this clarification has now created concerns that all non-PN transactions will be subject to tax.
FIIs VS FINANCE MIN:
FIIs petition against the general anti-avoidance rules (GAAR) proposed in the budget.
Finance ministry firm it will tax those FIIs that do not have 'adequate commercial interest' in Mauritius.
FIIs want the government to clearly define what it means by 'adequate commercial interest.

FIIs say they generally do not hold substantial stake in companies so their offshore transactions should not be taxed in India.
Finance ministry says the details will be spelt out in the rules.

Newsbody, Courtesy: The Economic Times

No comments: