Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: due date for vat payment :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: VAT RATES :: Central Excise rule to resale the machines to a new company :: cpt :: list of goods taxed at 4%
Indirect Tax »
 Indirect taxes collection could fall short of target due to GST
 Indirect Tax Collection Under Gst Goes Down By 30 Percent
 What is a belated income tax return and what are its consequences
 Why rejig of financial year could upset your tax planning
 The threat of harsh penalty should not impede tax compliance
 What are the tax exemption limits for allowances, reimbursements paid to employees? Find out
 High-income taxpayers to get priority treatment and extra facilities
 GST input tax credit rules: How taxpayers will benefit from ITC
 More complications in filing income tax returns
 Guidelines for selection of cases for scrutiny during the financial-year 2017-2018
 CBDT asks Income Tax officials to pull their socks up as revenue collection not satisfactory

GAAR deferred but new tax rule may keep foreign investors away
May, 22nd 2012

Foreign investors may be relieved over the controversial GAAR tax proposals being pushed back by a year but another new taxation framework could make their India investments riskier and expensive.

The proposals, that are a part of the Finance Bill, state that capital gains arising from the transfer of shares or interest in a non-Indian company in case the share or interest derives directly or indirectly its value substantially from assets located in India will be taxable in the country.

The new rules could force foreign investors to re-examine their structures for investments in India, while impact would be visible also on global mergers and acquisitions involving Indian businesses to take in to account the potential tax risks from the indirect transfer rules.

Foreign institutional investors (FIIs) are of the view that their gains from India are as such taxed in the country, and any repatriation of gains to its investors by way of redemption of capital should not come under the offshore transfer provisions.

A number of foreign funds, including a European association of the FIIs, may soon approach the Finance Ministry to seek clarifications and certain changes in the rules, sources said.

The previously proposed GAAR (General Anti-Avoidance Rule), which could have caused foreign investors huge tax liabilities despite investing through so-called tax-friendly jurisdictions, is estimated to have led foreign investors to withdraw or put on hold investments worth over $10 billion within just over a month of being announced.

However, the impact could be much higher from the now- cleared retroactive taxation of indirect offshore transfers, which could lead to many more billions of dollars worth investments getting hit within a short span of time of their implementation in the current form, industry sources said.

FIIs are hoping for certain changes and clarifications in the final form of the rules. Else, it is widely believed that they could consider exiting a vast majority their holdings in the country that are worth over Rs 11 trillion (about $200 billion), said a top manager of a leading foreign fund.

Asked for his views, consultancy giant PwC India's Executive Director Suresh V Swamy told PTI that the government needs to clarify that these rules would not apply to the FIIs, and small investors need to be exempted from any such tax liabilities.

It is difficult to quantify the impact from these proposals on the FII investments, but such an impact has to be in billions of dollars, he noted.

However, senior officials of various foreign funds with significant India exposure said that the new proposals could lead to exodus of overseas funds and the impact could be in high double-digit billions of dollars, depending on the level of clarifications and changes brought in by the government.

If no changes are made, and there are no clarifications either on various conditionalities of the rules, almost the entire FII holding of over $ 200 billion could see the impact, they noted.

Swamy said it was good that some important changes have been made to the proposed GAAR rules, such as setting up a committee of independent members and shifting the onus of proving the tax liability to the tax authorities from the taxpayer as proposed earlier.

However, this proposal has been now pushed back by a year and certain amendments have also been proposed for the benefit of the investors.

However, even bigger issue than the GAAR rules right now is the taxation proposals for overseas transactions. Here also it is the uncertainty that is a bigger concern than the provisions themselves, Swamy said, while adding that there must have to be a differentiation between the strategic M&A deals and the pure financial investments.

The proposal, which is said to have been brought in to tax Vodafone-like offshore transfers, has no thresholds prescribed and could have a significant adverse impact for FIIs investing into India.

For example, if there is a US Fund set up with capital from US investors and puts money into India, redemption of units for its clients could be liable to tax here in case the fund derives substantial value from Indian assets.

The high-profile Vodafone case involved the sale of shares of a Cayman Islands company by a Hutchison Group entity (in the British Virgin Islands) to a Vodafone entity in the Netherlands. However, the Supreme Court ruled that the situs (location) of the shares being sold was in the Cayman Islands and as such the transaction fell outside the jurisdiction of the Indian tax authorities.

The rules, which make part of the Finance Bill, call for any entity holding a substantial stake being liable for tax, but a definition is required for this substantial stake and a high threshold is required to define the same, Swamy said.

The DTC (Direct Taxes Code) called for a 50 per cent threshold limit, but no such limit is there in the Finance Bill, he said, while noting that the proposal could affect the portfolio investments, which are not like investments made in the factories or other physical assets.

Swamy said, Such investments can go anytime, they are like hot money. The fear of tax liabilities, which could occur even at a much later date and also for a much earlier period, under the proposed taxation rules would drive away the portfolio investments.

If changes are not made in the indirect transfer cases, the entire FII community would just stop investing in Indian markets, as India is not the only emerging and attractive market available to them.

The proposal, in its current form, could be of consequence in cases involving a repatriation of gains from an intermediary holding company to the fund and taxation of the investors in it.

Also, the proposals would come into force retroactively from April 1, 1961. In addition, the Budget proposed to amend the statute of limitation to 17 years from the end of the Indian tax year in cases where income relating to any capital asset located outside India has escaped audit.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Services SEO LLC e-boost Search Engine Optimization Services Internet Marketing Services Website Placement Services On-site Webs

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions