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Tax Residency Certificates likely to be deferred by two yrs
April, 17th 2013

The finance ministry may defer tax residency certificates by two years to soften the tax blow, which could be positive news for foreign investors reports CNBC-TV18’s Aakansha Sethi.

According to Budget 2013, tax residency certificates (TRCs) are not sufficient to claim tax treaty benefits. Though General Anti-Avoidance Rule (GAAR) and Tax Residency Certificate (TRC) are two separate things, it had caused a lot of concern because the finance ministry had brought into the Act what was till last year only in the explanatory memorandum. The provision said that TRC was a necessary condition, but it was not a sufficient condition and one would need other documents to prove beneficial ownership in order to get the benefits of a treaty.

In terms of Mauritius, where most of the money comes from, capital gains are not included under this but it had still caused a lot of concern amongst investors. A day after that the finance ministry said that Circular 789 in terms of Mauritius stands and hence capital gains would not be charged on transactions from Mauritius from where most of the investments come.

Sources now say that a few days before the Finance Bill is going to be tabled in parliament, finance ministry is contemplating whether they should defer TRC by two years and are evaluating the pros and cons of doing so. However, there is no final decision on this. The other option is to rewrite that because the Finance Minister himself had said that the TRC provision was very clumsily written.

While the question of 789 had been answered, it had left questions like those of participatory notes (P-Notes) unanswered. So, it would make sense for the finance ministry to defer TRC by two years, which is when GAAR also comes in and to look at both of those together.

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