After private equity firms and fund houses, taxman The risk of capital gains and the judicial General Anti-Avoidance Rule (GAAR) has increased on many multinational companies investing in India or sold part of your property Mauritius entities between 2013 and 2016. 

The tax department has reopened assessments of several multinationals on investments made in India and returns sent back to holding companies after sales, said people with direct knowledge of the matter.

 

The tax department has reopened the assessment only in cases where the investment was made through Mauritius. However, as in the case of fund houses and PEs, through investments Singapore And Cyprus could also be a target. While the tax department has reopened the case and sought documents from multinationals and funds, the fear is that the taxpayer could trigger a judicial GAAR.

India brought the GAAR regulation, referred to by tax experts as the legislative GAAR, in April 2017. However, the tax department is not actually required to specifically trigger GAAR. Judicial garb refers to principles that are not codified in law but are the result of judicial precedent.

“The recent investigation into the Mauritius Treaty protection claimed by taxpayers requires them to demonstrate commercial reasons for the set-up in that jurisdiction and its ongoing substance. It has arisen for capital gains on transfer of equity shares acquired before April 2017 in the past. and is also relevant to any treaty protection claimed in respect of dividend or interest.” Sanjay Tolia, Partner, Price Waterhouse & Company LLP.

As of 2018, most foreign direct investment (FDI) was done through entities registered in Mauritius, Singapore or Cyprus.

“These structures were used to reduce taxes, and in most cases, these companies existed only on paper. But that is what was done at that time, and no one wants to continue,” a senior tax lawyer, advising a client, said. thing, told ET.