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FPIs, PE funds get notices from AAR

Many PE funds and FPIs that had invested in India through Mauritius and Singapore had got a grandfathering benefit whereby they were allowed to pay lower taxes if they had invested before the bilateral tax treaties were amended.

, ET Bureau|
Last Updated: Jan 22, 2020, 08.41 AM IST
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Many FPIs are also nervous because, in a separate ruling AAR had last year disallowed grandfathering benefits of tax treaty to a foreign investor that routes its investments in the country through Mauritius.
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MUMBAI: Private equity funds and foreign portfolio investors that were looking to get clarity around grandfathering benefit of Singapore and Mauritius tax treaties have hit a roadblock as advance tax ruling authorities have demanded additional details from many of them.

Many PE funds and FPIs that had invested in India through Mauritius and Singapore had got a grandfathering benefit whereby they were allowed to pay lower taxes if they had invested before the bilateral tax treaties were amended.

However, now the authorities have asked many of these investors to provide details such as last 15 years’ minutes of meeting, date of investment, management fees paid over the years, and expenses incurred – some of which might not be even available anymore – tax experts said.

“Several PE funds and FPIs who had approached the Authority for Advance Rulings (AAR) to confirm benefit of grandfathering under Mauritius tax treaty have been asked to answer a lengthy questionnaire before availing the benefit,” said Shefali Goradia, partner at Deloitte India. “They have been asked to furnish minutes of board meetings since incorporation, date of investment, source of funds, group structure, all regulatory filings, management fees paid over the years, salaries paid, expenses incurred among other things. In most cases, this level of historical detail is neither available with the investors nor is it relevant to claim treaty benefit under established principles,” she said.

Many FPIs are also nervous because, in a separate ruling AAR had last year disallowed grandfathering benefits of tax treaty to a foreign investor that routes its investments in the country through Mauritius. The ruling had denied any benefit of the India-Mauritius tax treaty under which the applicable rates are a bit lower.

If investments were made before the amendment of the tax treaty in 2016, benefits were to be grandfathered— that is, income from such investments or capital gains would attract concessional tax rates prevalent before 2016.

Industry trackers said the issue was more worrying for several funds that have already filed returns and their cases could be scrutinised and questioned by the tax officers.

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