GAAR Fears might be a little Unfounded
Only 13 FIIs out of a whopping, 1,110 FIIs who are registered with the SEBI, might be in "Impermissible Segment" but they have one year to correct their present status. Also, around 44% of the FIIs do not operate through Mauritus route
NEW DELHI: Over a dozen Mauritius-based Foreign Institutional Investors (FIIs) are carrying out operations through impermissible arrangements and would attract provisions of General Anti-Avoidance Rules (GAAR), the implementation of which has been postponed by a year.
"We have found that 13 FIIs carrying out operations from Mauritius in India are in impermissible arrangement," a senior Finance Ministry official said without disclosing name of the investors.
Those arrangements of FIIs which are entered into with the intention of tax avoidance called "impermissible arrangement".
At present, 1,110 FIIs are registered with the Securities and Exchange Board of India (Sebi) and about 56 per cent are operating through Mauritius.
With the government deciding to postpone implementation of the GAAR by a year, the FIIs will have time to convert their arrangements into permissible ones.
The GAAR, which seeks to check tax evasion by foreign investors, will now come into play from April 1, 2013 and would apply to subsequent years.
In order to check the misuse of tax treaty by investors, India government is trying to re-negotiate the Double Tax Avoidance Agreement (DTAA) with Mauritius. The revision has been pending because of reluctance of Mauritius.
Both the countries had set up a joint working group in 2006 to work out the contours of the revised DTAA with a view to checking tax evasion by FIIs and other investors.
There is growing concern that many entities are routing their investments into India from Mauritius to reap undue tax benefits.
Finance Minister Pranab Mukherjee in his Budget for 2012-13 had proposed GAAR to "counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel".
GAAR, which was originally planned to come into effect from April 1, 2012, had 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.
In order to address the concerns of genuine investors, the Finance Ministry had set up a committee on GAAR which is likely to submit its report by the month end.
"We have found that 13 FIIs carrying out operations from Mauritius in India are in impermissible arrangement," a senior Finance Ministry official said without disclosing name of the investors.
Those arrangements of FIIs which are entered into with the intention of tax avoidance called "impermissible arrangement".
At present, 1,110 FIIs are registered with the Securities and Exchange Board of India (Sebi) and about 56 per cent are operating through Mauritius.
With the government deciding to postpone implementation of the GAAR by a year, the FIIs will have time to convert their arrangements into permissible ones.
The GAAR, which seeks to check tax evasion by foreign investors, will now come into play from April 1, 2013 and would apply to subsequent years.
In order to check the misuse of tax treaty by investors, India government is trying to re-negotiate the Double Tax Avoidance Agreement (DTAA) with Mauritius. The revision has been pending because of reluctance of Mauritius.
Both the countries had set up a joint working group in 2006 to work out the contours of the revised DTAA with a view to checking tax evasion by FIIs and other investors.
There is growing concern that many entities are routing their investments into India from Mauritius to reap undue tax benefits.
Finance Minister Pranab Mukherjee in his Budget for 2012-13 had proposed GAAR to "counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel".
GAAR, which was originally planned to come into effect from April 1, 2012, had 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.
In order to address the concerns of genuine investors, the Finance Ministry had set up a committee on GAAR which is likely to submit its report by the month end.
News Body, Courtesy: Economic Times
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