IVCA expresses concern over proposed tax law changes

The legislation, which impacts the tax treatment of offshore structures used to channel capital into the country, formed part of the 2012-2013 federal budget, although investors were given a one-year grace period to adapt to the regulation in May.

Most private equity investments into India are channeled through Mauritius in order to take advantage of the countries' double tax agreement (DTA). Routing investments purely for the purpose of avoiding tax - or carrying out a transaction which "lacks commercial substance" - is something that would be prohibited by the new General Anti-Avoidance Rule (GAAR), however. Under the rule, transactions would be presumed to have been structured to obtain tax benefits unless the taxpayer proves this is not the main objective.

As a result, IVCA has announced that it will attempt to seek a clear definition of precisely what commercial substance entails for Mauritius-based structures from the finance ministry next week.

"Almost 90% of private equity investments come through the Mauritius route," IVCA President Mahendra Swarup told The Business Standard. "The absence of any clear definition of what amounts to ‘commercial substance' has created a lot of uncertainty."

Although the Indian authorities are primarily interested in targeting wealthy Indians bringing money onshore, private equity firms are affected. Some are already relocating to Singapore, which offers similar tax advantages and where it is easier to set up sufficient business operations to convince the authorities that tax is not the key factor.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Regulation
• Mauritius
• India
• regulation
• tax