The financial meltdown which resulted in large scale withdrawal by the FIIs from the Indian Capital Market has had its effect on the government policies. In a recent move, the FIPB has overruled the objections raised by the revenue department of the Ministry of Finance, Government of India to various FDI proposals being routed through Mauritius, Cyprus etc. on grounds of possible treaty-shopping.
While clearing a number of proposals so far held up on the basis of objections on grounds of treaty shopping, it has been clarified that the revenue department will be free to investigate all such cases from tax angle. Knowing the intricacies and multi governmental agencies involved in such investigations, the effectiveness of such provisions remain to be seen.
Department officials are of the view that companies try to dodge tax liabilities by routing their investments through Mauritius. The board, on the other hand, is of the view that India has a valid treaty with Mauritius to avoid double taxation. Therefore, it took a “conscious” decision to overrule this generic objection which has been raised in several cases. Interestingly, the FIPB’s view has the backing of officials from the department of economic affairs, which is also a part of the finance ministry. The FIPB, too, functions under the same ministry.
Contributed By:
Prof. Bikramjit Sen
(Globsyn Business School)
Source: The Economic Time
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